The War on Installment Loans Continues

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The War on Installment Loans Continues

PersonalMoneyStore.com
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• The Obama administration has been waging all-out
  war on installment loans for some time. The
  administration calls them predatory and a
  threat to Americans on low-income. They say that
  these lending agencies are charging the poor far
  more than they can afford. Quick money might be
  convenient, but if the politicians are to be
  believed, it certainly isnt affordable.
• Testimonies Of Loan Recipients Doesnt Back Up
  Obama Administration Claims
• The problem with the view from the Hill is that
  it just isnt backed up by the view from the
  ground. Yes, there are stories of people who get
  into serious trouble with payday loan interest
  payments. But for the vast majority, as Personal
  Money Store notes, these installment loans are a
  lifeline.

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The government doesnt like this information
spilling out into the public domain. It
contradicts their negative narrative about
installment loans. But information has
subsequently trickled out, thanks to the Freedom
of Information Act. The Consumer Financial
Protection Bureau was forced to release more than
12,500 testimonials on the matter. And of these
testimonials, 98 percent expressed positive
sentiment towards installment loans. Thats
hardly the picture of payday loans the mainstream
media and politicians portray. One of the
reasons people love installment loans so much is
the sheer convenience. Theyre far easier to
obtain than government assistance. And because
installment loans are offered by private
companies, the level of customer service is far
higher. Then theres the affordability issue.
Were told by the political class the interest
rates on payday loans are unaffordable. Interest
rates of over a 400 percent per year seem utterly
unreasonable.
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But payday loans arent designed to be paid back
over the course of a year. Instead, they are
meant to be paid back within a matter of weeks,
if that, meaning that the actual payments are
much lower. Installment Loans Are A Good Option
For The Poor Right Now One of the problems
today is that many poor people simply dont have
anywhere else to turn when they get into trouble.
Sure, payday loans arent ideal - not least
because they imply that a lot of people dont
have any savings. But its clear that they are
dealing with a pressing need in the community.
People need to have access to credit when their
car breaks down, or boiler stops working.
Without that money, theres a good chance that
people will get sick or wont be able to get to
work to earn money in the first place. Because
theres such a clear and immediate need for
payday loans, banning them doesnt seem to be the
right approach. Jim Hawkins is an associate
professor at the University of Houston Law
Center.
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He has called prohibition a blunt regulatory
instrument. He says that a blanket ban would
punish reputable lenders and prevent people from
getting installment loans that they need. That's
a problem. Policy Makers are Looking To Regulate
the Installment Loan Market The government
isnt going to give up its fight against the
payday lenders. So what options are on the table
right now? The Consumer Financial Protection
Authority has suggested moves to make sure that
borrowers can pay off their loans. The so-called
full-payment test would be carried out to see
if borrowers can still meet their living expenses
along with the loans. Of course, carrying out
an assessment like this would make the cost of
borrowing even higher for those most in need. And
it will deny some people the opportunity to get a
loan in circumstances where the regulator thinks
that they cant afford it. Individuals making
adjustments to their budgets is, apparently, not
an option.
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The CFPB also wants to clamp down on what it
calls the debt trap. The idea here is that when
payday lenders roll over debts, customers get
bogged down in a spiral of debt and interest
payments. It is true that this is something that
has happened to some people using installment
loans. But not allowing borrowers to refinance
will ultimately put them in the same position
that they were in before. That is, with no
money. The final proposal is to regulate penalty
fees. Currently, payday loan companies can
withdraw funds from their customers checking
accounts directly. But if they dont get their
payment immediately, some payday loan companies
charge additional fees. This is perhaps one way
the industry could improve its services. Its
clear that there are things that the payday loan
industry could do better. But the idea that it is
an unbridled scourge on our society is unfounded.
Positive customer feedback and real-world
benefits suggest otherwise.