Gaurav Bhola, MSM, managing editor
The ever growing popularity of payday loans runs in parallel to the growing negative image of the industry. The industry is portrayed as amiable loan sharks, they don’t break your legs if you don’t pay on time but they can ruin your credit, a fate less enviable. The industry took the idea of cash advance the credit card industry offered to the next level, built upon it and populated every nook and cranny of the American landscape. The landscape is flooded by national operations and local mom and pop shops.
This much visibility was bound to have light shone upon their loan practices, which has invited growing public and governmental scrutiny. The booming industry has been viewed as a legal loan shark racket. Hmmm…a legal racket, why would anyone think that? It could be that the borrowers aren’t properly informed of every risk they could face. The risks are inclusive of astronomical interest rates and excessive borrowing fees. The fees per $100 borrowed can range from $15 to $50…interest rates can range from over 100 percent to over 1000 percent! WOW! I can see how many people can see this as loan sharking but wait, the industry is remedying its loan practices. No, they aren’t lessening the fees or interest rates; we couldn’t expect something reasonable like that. No, they are going in for a makeover, yes a new way to present themselves to the tired…the poor…the weary masses. By the time you finish hearing what the payday industry has to say, you may be upto your boots in some kind of weary mess.
The industry’s national trade association the Financial Services Association of America (CFSA) represents a bulk of check cashing, payday loans, and interconnected financial community. The CFSA has decided to voluntary make changes by instituting new best practices of self-governance. A member of CFSA found not adhering to the new rules will be disciplined and may lose its membership. In addition, CFSA has instituted a $10 million consumer education campaign. The campaign will advise consumers of:
- using cash advance responsibly
- borrowing only what is needed and can repay comfortably
- dealing only with scrupulous lenders
- using a cash advance as a short-term stop gap not a long- term instrument
CFSA members must adhere to the following Best Practices:
- giving borrowers an option of an Extended Payment Plan, permitting them to repay the loan over a certain period
- option offered at no additional cost, hence allowing borrowers a dependable method of closing out their loans.
- posting "Customer Notice" on all CFSA member-company marketing materials, stating: "Payday advances should be used for short-term financial needs only, not as long-term financial solutions. Customers with credit difficulties should seek credit counseling."
- forcing CFSA members to prominently display the CFSA seal at their locations
- excluding marketing that promotes cash advances for trivial reasons
These are the type of actions which are long overdue and can bring more credibility to the industry. But I always recommend that cash or payday advance services should be used as a last resort not the first option. If loans aren’t paid back in a timely manner, your credit can be ruefully affected and you may have to seek out a good credit repair or counseling place.
