Credit Unions competing with payday lenders

Credit Unions offering some type of payday loan alternative is nothing new. What I think is worth sharing are the comments left on this article titled N. Texas credit unions plan to compete with payday lenders.

rgvcowboyfan wrote on 7/2/2009 4:21:43 PM:
Credit unions do not lend you if you have had a tough financial time in the past even though you may be working on improving your finances. Pay day loan companies do not look at your credit score, only at your current ability to pay.

valtwin wrote on 7/2/2009 1:14:11 PM:
Two totally different clienteles. The CUs will only be in competition amongst themselves.

We provide payday loan software for many lenders, and I find payday lenders are much more leniant with, not to mention forgiving, of their customers. This goes a long way. Payday lenders are open to re-lending to customers that have been a late payers are delinquent in the past. I don't think credit unions or banks are like that.

The point is that you can make a cheaper product, but is it necessarily better?

Obama's plan

"President Barack Obama asked Congress on Tuesday to create a new agency to police the fine print on credit card bills and mortgage documents and determine what fees, penalties and interest rates are fair."

Unlike mortgages and credit cards, I think payday loans are very straight forward. If you have not figured out that rolling over a payday loan more than 3 times is a really bad idea, then payday loans are not your biggest problem.

Now, I believe the payday loan industry should provide complete disclosure. For the most part, I believe it does. For example, it's common for the promissory note to display:

CUSTOMER NOTE: Payday advances should be used for short term financial needs only, not as a long term financial solution. Customers with credit difficulties should seek credit counseling.

OR

YOU CANNOT BE PROSECUTED IN CRIMINAL COURT TO COLLECT THIS LOAN.

Everyone should read this article in the Associated Press titled "Administration sends Congress consumer legislation."

Study: Payday loan users say they have no other options

How do consumers win, if the legislature gets rid of all the competition? Everyone wants banks to offer payday loans. Some do, but most stay away from it b/c of the stigma and they can't charge what they need to.

This Kentucky study is basically saying that people that use payday loans do NOT have any other options. Once again, supply and demand collide.

This study is not pro payday lender, but there are some good facts.

A survey of low-income families in nine Kentucky counties showed that many turned to payday lenders because they couldn’t access traditional loans or other banking services.

You can read the full article at mcclatchydc.com.

PLS Financial Services offering payday loans to the unemployed

PLS is 28th on the Crain's Fast Fifty list of fastest-growing local companies, although revenue is down this year. In 2008, this privately held company did $218M in revenues.

President Bob Wolfberg says:

"If you believe there's nothing wrong with (this type of) loan, why should (the unemployed) be any different from someone who has any other form of income?"

I would not give a loan to an unemployed person, b/c I don't think they can pay it back. Bob does make a pretty good point. For the record, these loans to the unemployed account for less than 1% of their portfolio. Almost jokingly, "I don't think we've paid for the cost of the banners" in PLS storefront windows proclaiming that unemployment benefits qualify.

You can read the full article in Chicago Business magazine.

The Bite of Bank Fees

Banks are raising their NSF fees. The average fee increase $2.50 to $27.50 this year.

The thing with NSF's is that since banks charge them, they're ok or acceptable. I wonder why that is?

Here is a NSF horror story.:

Bank customer Laurie Harris:

Early last month, she deposited money into her Bank of America checking account, but the check did not clear before several charges were posted. Each time Harris overdrew her account, she paid $35, totaling nearly $300 in fees in May. That set off a chain of events that has left her with about $600 in overdraft fees this month.

You can read the full article in the Washington Post title The Bite of Bank Fees.

Guilty plea in payday loan scheme

"Alvin Allister Ambrose, 37, the owner and operator of First Cash Express, faces up to 8 years in prison and fines of up to $75,000 misuse of over $5,000,000 solicited from 180 investors to provide "payday" loans to borrowers with high rates of return to the investors."

A lot of the money was misappropriated for personal use for real estate speculation business, a Carribean cruise, diamond rings, furniture and his wife's law school tuition.

You can read the full article here.

The (alleged) real history of payday loans in Virginia

This article is a response to an article that hammered Republican Del Oder of Virginia. He's largely responsible for putting 35% of Virginia payday lenders out of business.

Just curious, how does that help borrowers?

He's basically saying that the payday law passed in 2002 was in response to the bank rate export model where lenders would rent a bank charter to get around state laws.

Anyway, the article is worth reading.