By: Gaurav Bhola, MSM, Managing Editor
The tide is turning for the cash advance industry. The payday industry has been trying to garner mainstream acceptance over the years with little to show for it. Even though payday loan lenders have thousands of locations across the nation, national legitimacy has always evaded it. But that may be changing soon. There are an increasing number of credit unions and banks that are getting into the fast cash loan business.
The Community Financial Services Association of America (CFSA), the nation’s premier organization of payday lenders has welcomed the recent moves by traditional financial institutions like, credit unions entering the cash advance lending market. The move by the credit unions into the niche loan market fully dominated by fast cash loan lenders is a complete 180 degree shift in its business model.
Credit unions have always shied away from giving loans to consumers whose credit history excludes them from standard loan services. The CFSA believes that competition from other financial institutions is a good thing, and that it will help provide greater mainstream acceptance of payday advances.
If credit unions and banks successfully offer payday loans then the loans will become viable financial products overtime. Also, entrance of the financial institutions may force uniform standards in the personal loan lending industry.
However, the CFSA believes that enterprising credit unions providing fast cash loan alternatives have yet to be successful at it. While there is huge demand for payday cash advance loans most credit unions have gained only a small portion of the business.
The reason for the small penetration into the payday loan market could be due to their products being completely different from fast cash advance loans. The personal loans offered by credit unions have different fee structures, and limitations than the ones offered by payday lenders. But personal loans from the unions are good as they offer more options for consumers. However, they cannot be considered substitutes or true alternatives to traditional payday loans.
Recently, Synovus, a Florida bank started providing short-term loans to businesses. The bank offers payday advances to businesses with less than twenty-five million dollars in assets. The businesses need continued cash and Synovus meets their short-term needs.
Business fast cash lending opens up new opportunities for the payday industry. Business payday loans work differently than consumer loan. A consumer personal loan allows a borrower to pay the loan by their next payday via a checking account. Meanwhile, business cash advance loans are not paid back from a checking account; but incrementally through a credit card. The business makes payments as if paying off a credit card bill.
Nevertheless, credit unions and banks haven’t progressed to a stage that they can offer faxless cash advances, online payday loans, or no fax payday advances. But who knows the traditional financial institutions may start offering online paydays soon.
