Free Essay

Payday Loans

In: Business and Management

Submitted By Quintin1969
Words 5493
Pages 22
MBA 615

Payday Loans

Executive Summary Payday loans are short-terms, high-interest loans where people go to a physical loan store or via online store that are not banks. They are designed for people who need a quick injection of money before their next paycheck and its purpose is fast, easy money to take care of unexpected bills or emergencies (Watson, Stephanie., 2014). They started around 1959 when the senate passed a bill allowing people to received small amount of money for short-term loans for emergency, such as bankruptcies, bad credit, etc… The bill was to help people who couldn`t receive a regular loan at a normal interest rate. Since then, Payday loans have become very popular and in 1996, Payday lending saw a huge boom when the senate legalized them. In the mid-2000, online lending became available and is now a huge piece of the market (PaydayLoanPay.com., 2011-2014).

Recently many controversy have been discussed with the Payday lending industry because of many operating dishonestly and illegally. This huge issue has caused the department of justice to investigate and place restrictions causing many legal and honest operating Payday lending to close shops and employees losing their jobs (Okun, Sarah.). In the meantime, the honest and top Payday lenders have form the Online Lending Alliance (OLA) to defend them and make sure Payday Loans don`t get de-legalized because of cracks in the lending system (Jones, Liz., 2014, March 26).

Payday loans serves a great purpose to many who are in financial strains with poor credits even with their expensive fees and higher interest rates. The DOJ should find and prosecute the illegal and dishonest lender stores and regulate the industry in a way that reflects fair business practices, instead of placing too many restrictions or trying to de-legalizing the industry.

What is a Payday Loan A Payday loan is a loan that you get from a business that is not a bank, usually a loan store. It is called a Payday Loan because you generally borrow just enough to get through your next paycheck, which is when the money is due (Caldwell, Miriam., 2013). They are designed for people who need a quick injection of money before their next paycheck. The purpose of a payday loan is fast, easy money to take care of life`s little emergencies (Watson, Stephanie., 2014).

Payday Loans operate under a wide variety of titles, and they may take postdated checks as collateral. You can apply for it in person by visiting a store or via online. Most loans can be anywhere from $50 to $1000 and they charge a large fee for the loan, which puts the interest rate very high, some rates are as high as four hundred percent. Payday loan businesses cause customers to become reliant on them because they charge large fees, and expect quick repayment of the money. This can make it difficult for a borrower to pay off the loan and still be able to meet monthly expenses. Many borrowers have loans at several different payday loan businesses, which worsens the situation (Caldwell, Miriam., 2013). In short, Payday loans are short-terms, high-interest loans (Watson, Stephanie., 2014).

History of Payday Lending No one can say when actually payday loans became popular in the USA but their first official mentioning was in 1959. In that year the Senate passed the bill according to which people were permitted to receive small sums of money as short-term loans in urgent situations. The bill was to help all those people who, because of different reasons, could not apply for regular loans. Those reasons included bankruptcy, bad credit and such. During those days, those loans were called check cashing loans and people could get them in person only (transactions via the Internet became popular much later) (PaydayLoanPay.com., 2011-2014).

The industry was originally prohibited by traditional state-based anti-usury legislation, but gained exemptions from those laws throughout the 1990s and early 2000s until it reached the stage where it was authorized in 35 American states (Online Payday Loans., 2014). Payday lending is now legal and regulated in 37 states. In 13 states it is either illegal or not feasible, given state law (Wikipedia., 2014). Even in states where it is not officially authorized, the American industry has exhibited great ingenuity in evading regulation designed to work against it. Indeed, it is a feature of the payday lending industry that it frequently adopts innovative approaches to avoid unfavorable legislation in every jurisdiction in which it is threatened and generally succeeds in continuing to operate under all but the most prohibitive regulation (Online Payday Loans., 2014). As for federal regulation, the Dodd–Frank Wall Street Reform and Consumer Protection Act gave the Consumer Financial Protection Bureau specific authority to regulate all payday lenders, regardless of size.

Payday lending enjoyed great popularity in the 90s. To be more precise, it happened in July 1996 when the Senate legalized them (PaydayLoanPay.com., 2011-2014). The high-cost short term lending industry in United States has grown explosively since 2002.

In the early 1990s, there were less than 200 payday lending stores across America. By 2007, there were 25,000. To give a sense of perspective, this has been described as: “more payday loan establishments than there are McDonald’s and Starbucks locations combined”. In 2000, $10 billion was loaned in payday loans across America, a figure which grew to $25 billion by 2003 and again to more than $28 billion by 2006 with payday lenders thought to issue loans to approximately 15 million American households every year. In terms of loan revenue, it is estimated payday lenders generate approximately $5.5 billion annually in loan fees. This estimate does not include the online industry, which is comparatively small, but growing, with loan volume in 2008 estimated to be approximately $7.1 billion (Online Payday Loans., 2014).

The growth of payday lending has led to fierce policy debates across many American jurisdictions. Consumer advocates increasingly characterize payday lending as a predatory lending model that causes debt spirals and harms low-income consumers. The industry, on the other hand, expends considerable resources lobbying for further deregulation and opposing legislative attempts to curb growth (Online Payday Loans., 2014).

How Payday loan works
The basic loan process involves a lender providing a short-term unsecured loan to be repaid at the borrower's next payday. Typically, some verification of employment or income is involved (via pay stubs and bank statements), although several payday lenders do not verify income or run credit checks. Individual companies and franchises have their own underwriting criteria.

Physical stores
In the traditional retail model, borrowers visit a payday lending store and secure a small cash loan, with payment due in full at the borrower's next paycheck. The borrower writes a postdated check to the lender in the full amount of the loan plus the fees. On the maturity date, the borrower is expected to return to the store to repay the loan in person. If the borrower does not repay the loan in person, the lender may redeem the check. If the account is short on funds to cover the check, the borrower may now face a bounced check fee from their bank in addition to the costs of the loan, and the loan may incur additional fees or an increased interest rate (or both) as a result of the failure to pay (Wikipedia., 2014). Online stores
In the more recent innovation of online payday loans, consumers complete the loan application online (or in some instances via fax, especially where documentation is required). The loan is then transferred by direct deposit to the borrower's account, and the loan repayment and/or the finance charge is electronically withdrawn on the borrower's next payday (Wikipedia., 2014). For example, your car broke down and you decide to borrow $300 for the repairs from a payday loan. You'll write a post-dated check for $340 (the amount plus a finance fee) made payable to the lender. The lender then advances you $300 for a set period, usually 14 days. When that period is up, you pay the lender $340 in cash, let them deposit the post-dated check or write another post-dated check for the amount with an additional finance fee. If you don`t pay the debt in full at the end of the term, you will be charged additional fees and finance charges (Watson, Stephanie., 2014).

Types of Payday Loans:
One Hour Payday Loan
The one hour payday loan has been made a dream come true with the advent of the online payday lenders who have made it easier to apply for such loans over a very short period of time. You can actually get a loan within the span of one hour. All you have to do is fill in an online form and then make sure that the details submitted by you are correct. Once the company has verified your details, you will receive the money in your bank account (Shree, Apurve., 2013).

Instant Online Payday Loan
The instant online payday loan is a very fortunate thing for those who needed money. It should not be made into a regular affair as it will only lead to a depletion of your savings. However, having said that, the no fax payday loans have made the instant online payday loan possible as well. So if you are going through a financial crisis, you need not wait for the bank to approve your loan to work out your problematic matter. You need not worry about your credit history and score and can go ahead and apply for a payday loan. Moreover, the no faxing option makes the entire payday loan process is a lot less tiresome (Shree, Apurve., 2013).

Cash Advance
The cash advance in your bank will be liable to be paid back with your next salary check. These loans are an expensive affair and you might find yourself paying back much more than you are able to afford. Therefore, it is really important that you read the fine print before committing to taking the loan. Most lenders who offer lower rates of interest often camouflage their costs as processing fee. Those with lower processing fee will have a higher rate of interest. More or less the rates come up to the same (Shree, Apurve., 2013).

Pros and Cons: Pros
Convenient
Requirements to qualify for a payday loan is a steady income, a state-issued ID and a checking account. When you walk into a payday loan store, the chances are high that you'll walk out with some cash to pay your bills in less than an hour (Chadwick, Danny., 2012).

Quick and Easy
The payday loan paperwork is usually easy and quick. Most times, the loan process takes less than a half hour, and the money will be deposited into your bank account within one day (NJ Highland Council).

Available to people with poor credit
Often, the reason many people turn to payday loans is because they cannot qualify for a conventional loan because of poor credit. Seldom, Payday loan services check their customers` credit scores (Chadwick, Danny., 2012).

Most are professional, upstanding institutions
This industry has grown substantially in the last two decades. Payday loan institutions have matured from small operations to large chain and franchise establishments. A natural consequence of this is that management and the market have cultivated stores that look and feel like regular banks. Also, employees who run these stores are professional and courteous, and they treat their customers with the respect they deserve (Chadwick, Danny., 2012).

Cons
Payday loans can only offer small amounts ($100-$1000)

Expensive
The cost of the money borrowed from a payday lender would be prohibitively expensive if these loans had the same repayment terms as their conventional counterparts. The annual percentage rate of interest on a payday loan ranges from roughly 200% to 675% (Chadwick, Danny., 2012).

Not a long-term financial solution
If you're looking to get a payday loan, chances are your financial situation isn't good. While getting an influx of cash may help with your problems short term, it cannot fix the underlying problems that led you to a situation in which you needed such a loan in the first place (Chadwick, Danny., 2012).

Terms and Conditions
The terms of payday loans are seldom made clear to those who are so desperate for quick money. Not reading the terms and conditions carefully can mean thousands more in fees (NJ Highland Council).

Dishonest
Unfortunately, some Payday loans behave like loan sharks rather than legitimate businesspeople. A good rule to follow is that if you ever feel uncomfortable borrowing money from a payday lender, don't do it. There are hundreds of other scrupulous lenders who will gladly take your business without ripping you off (Chadwick, Danny., 2012).

Online Lenders Alliance (OLA) Since 2005, OLA has worked on behalf of the online lending industry, representing top online businesses. The Online Lenders Alliance is an organization representing the growing industry of U.S. based companies offering online consumer short-term loans, also known as Payday Loans.

To protect the industry against potential damage caused by inept lenders, the leaders formed OLA in 2005. The first step was to standardize the principles by which loans should be made. All member companies have agreed to a List of Best Practices and Code of Conduct developed by OLA to ensure that consumers are fully informed and fairly treated and are using all lending products and practices responsibly. Despite the thousands of positive stories relayed to short-term lenders by subprime customers, there remain a large number of misconceptions and myths surrounding the online lending industry. One of our tasks as a professional organization is to dispel these myths, clear up the misconceptions, and educate the public, legislators and regulators about the demand and need for consumer short-term loans on the Internet (Jones, Liz., 2014).

OLA has the authority to speak on behalf of the online lending industry to the public, opinion leaders and government officials. They are qualified to take collective action in compliance with antitrust, tax and lobbying laws. The issues affecting the industry are extremely complex; therefore, OLA consults with several experts to stay abreast of events impacting the industry. The Alliance is there to advise and educate consumers and resourceful for policy makers at both State and Federal levels (Jones, Liz., 2014).

Borrower Demographics Most payday loan borrowers are white women between 25 and 44 years old (Herbert L. White., 2013). Most borrowers are dealing with persistent cash shortfalls (Payday lending in America., 2013). About 58% of consumers have trouble meeting their regular bills at least half of the time, including one-third saying they have trouble meeting their bills most of the time (Payday lending in America., 2013). Additionally, there are five groups that are more likely to use a payday loan: African Americans; people without a four-year college degree; home renters; people who earn less than $40,000 a year and those who are separated or divorced (Herbert L. White., 2013).

Listed below are additional details related to payday loan customer demographics:
90 percent have a high school diploma or better (CFSA.).
54 percent have some college or degree (CFSA.).
53 percent are under 45 years old (9 percent are 65 or older) (CFSA.).
63 percent have children in household (CFSA.).
32 percent own homes (CFSA.).
54 percent have major credit cards (CFSA.).
100 percent have steady incomes (CFSA.).
100 percent have checking accounts (CFSA.).

Why are consumers using payday loans? Payday loans are typically viewed as helpful for unexpected bills or emergencies. Sixty-nine percent of borrowers use the loans to cover a recurring expense, such as utilities, credit cards bills, rent or mortgage payments, or food (Payday lending in America., 2013). Sixteen percent use the loan for unexpected expenses (Payday lending in America., 2013). Individuals are using payday loans to avoid borrowing from family and friends and to avoid cutting back on their current expenses (Carrns, Ann., 2013). However, 41% of borrowers say they need a cash infusion to pay off their payday loans debt which leads them to seek out money from family, friends and often times religious organizations. From a survey of 80,000 payday loan users, it was determined that one in ten borrowers used a payday loan for automobile repairs (Rust, Adam., 2012). This finding is ironic as this is the story most commonly used by payday lenders to personalize the need for their loans.

The Community Financial Services Association of America, a group that represents payday lenders suggests, “Short-term credit products are an important financial tool for individuals who need funds to pay for an unexpected expense or manage a shortfall between paychecks. In our current economy and constricted credit market it is critical that consumers have the credit options they need to deal with their financial challenges (Carrns, Ann., 2013).

Payday Lenders’ Target Market Payday lenders benefit most from “prior prime” borrowers (Rust, Adam., 2012). Prior prime borrowers are defined as once having a prime credit rating, but who no longer do because of some financial crisis within the last two years (Rust, Adam., 2012). Individuals within this segment generally have higher incomes and are less likely to default (Rust, Adam., 2012). Currently, the prior prime consumers make up about 38% of the payday loans consumer base, but are the most profitable segment for payday lenders (Rust, Adam., 2012). Clearly, the repeat customers within this segment are the most profitable for the lenders.

Many studies on the locations of payday loan establishment suggest the lenders target minority neighborhoods. Several of the studies have found that are indeed more likely to locate in neighborhoods with disproportionately large Hispanic and/or black populations (Morgan P. Donald, Pan J. Kevin., 2012). Additionally, there are obvious racial differences between users and nonusers of payday loans which are consistent with the target market critique of payday lenders. Blacks represent 22% of users and 12% of nonusers (Morgan P. Donald, Pan J. Kevin., 2012). Hispanics accounted for 15% of users and 9% of nonusers (Morgan P. Donald, Pan J. Kevin., 2012).

Economic Impact in the U.S According to an article from the Insight Center for Community Economic Development, payday lending industry had a negative impact of $774 million in 2011, resulting in a loss of more than 14,000 jobs (Lohrentz, Tim., 2013). U.S. households lost an additional $169 million as a result of an increase in Chapter 13 bankruptcies linked to payday lending usage (Lohrentz, Tim., 2013). Payday loan interest totaled $3,309,926,773 in 2011 (18). “The economic activity generated by payday lending firms receiving interest payments is less than the lost economic activity from reduced household spending (Lohrentz, Tim., 2013). More specifically, each dollar in interest paid subtracts $1.94 from the economy through reduced household spending, while adding only $1.70 to the economy through spending by payday loan establishments (Lohrentz, Tim., 2013). As you can infer, for every dollar paid in interest an estimated 24 cents is lost in the U.S. economy. Due to the fact that low and moderate income households spend such a high percentage of their income, a dollar added to a household will generally have a great positive impact on the economy compared to a dollar added to a business (Lohrentz, Tim., 2013).

In the study it was estimated that is the households had hung on to the $3.3 billion in interest paid to payday lenders, they would have generated $6.34 billion in economic activity which is estimated to create 79,000 jobs (Lohrentz, Tim., 2013). The net loss to the economy is said to be concentrated in the following industries:
Healthcare
Education
Retail Trade The five states with the greatest amount of payday loan interest charged are California, Texas, Florida, Mississippi, and Illinois (Lohrentz, Tim., 2013). Each of the five stated lost an estimate of 800 jobs in 2011 due to payday lending and the losses per state range from $135 million in California to $55 million in Illinois (Lohrentz, Tim., 2013).

In another study, a correlation was found between approved payday lending applications and Chapter 13 bankruptcies (Lohrentz, Tim., 2013). The study found that payday borrowers were five time more likely to file for bankruptcies than the general population (Lohrentz, Tim., 2013). “When the $169 million loss is combined with the $774 million loss in value added to the economy, the total economic loss resulting from payday lending in 2011 comes to $943 million (Lohrentz, Tim., 2013).

Payday Loan Loss Rates The loss rates for payday lenders, meaning the amount of money no paid by borrower, are about 3% of funds – about $2.98 per $100 lent (Payday lending in America., 2013). However, industry analyst’s calculations suggest that 97% of payday loans are eventually paid (Payday lending in America., 2013).

Collection Processes A lender may collect a payday loan in default by directly engaging in collection activities on its own behalf, by assigning collection activity to third parties for a fee, or by selling defaulted debts to a third party (CFBP). The Fair Debt Collections Practices Act does not apply to a lender collecting debts under its own name (CFBP). Lenders may choose to report information about a borrower to a consumer reporting agency, which may impact the borrower’s credit score (CFBP). The lender must ensure their employees or third-party contractors are following the guidelines listed below:

Employees and third-party contractors do not disclose the existence of a consumer’s debt to members of the public without the consent of the consumer, except as permitted by law (CFBP).

The lender has policies on avoiding repeated telephone calls that abuse or harass any person at the number called (CFBP).

Kansas City Online Payday Lending Today, Kansas City is known to be one of the ‘hubs’ of the online payday loan industry (Kansas City Star., 2013). The birth of this industry in Kansas City came from a somewhat incestuous web of sources. By 2006, Kansas City had multiple online payday lending companies, many tagged with collection agencies, it had a company purchasing bad debt from the online lenders, it was the jump off point for the Washington D.C online lenders lobbyist group, and it housed one of the biggest sources for online consumer applications.

In 2002 a local Mission, KS resident, Joel Tucker, started a company called Bahamas Marketing Group (Hudnall, David., 2013). The company provides software services and transaction processing services to consumer finance companies. Its software-as-a-service approach includes loan management software capabilities, data analytics, and customer acquisition and qualification (Bloomberg Business Week). Bahamas Marketing Group, later BMG, Inc, then eData Communications, is the main source for online payday loan applications. While a small percentage of the loan applications are processed through individual lenders, the majority are purchased from a 3rd party (eData.) (Okun, Sarah.). Each lending entity contracts with eData to purchase a certain number of applications. eData in turn agrees to ensure the quality of the application. As an example, the lending company will contract with eData for $10,000 a month for 100,000 applications and eData ensures that 80% of those applications will actually result on a consumer loan (these numbers are for explanation only and in no way reflect the actual agreements between the data provider and the lender).

Founded in 2005 by another Kansas City local, Mark Curry, the Online Lenders Alliance (OLA) is a lobbyist group now located in Washington D.C. that represents the growing industry of U.S. based companies offering online consumer short-term loans (Hudnall, David., 2013). In addition to the OLA, Mr. Curry had an online payday loan business named Geneva-Roth Ventures based out of Mission, KS (Kansas City Star., 2013). Geneva-Roth has since closed and OLA is Mr. Curry’s primary business (though next to impossible to find his name on it). The Online Lenders Alliance sets the standard for quality lenders. In order for an online lender to be a member they must abide by the regulations outlined by OLA.

In 2008, yet another Mission Hills resident, Vincent Hodes started an investment company called Vianney Fund, LLC (Hudnall, David., 2013). Vianney Fund, LLC, also known as Vianney Investments, LLC buys debt from short-term online loans at pennies on the dollar and (Hudnall, David., 2013). While Vianney closed their doors some time ago, Mr. Hodes is still active in the industry. You’ll find his name attached to lending entities such as Sky Loan Online (SLOC) and Blue Sky Lending. Both are tribal online payday loan companies.

In 2005, a few other local Kansas City dwellers pooled their sources and started an online payday loan and collections company called LTS Management (Okun, Sarah.). LTS has done business with all of the aforementioned business owners (Okun, Sarah.). With all those mutually beneficial businesses in practically the same zip code, there’s not wonder Kansas City has become known as a center for online payday lending and the exploiters that come with it.

Regulations and Restrictions Over the past year, the online lending industry as a whole has been attacked. In March of 2013, the Department of Justice disclosed the beginnings of an investigation dubbed “Operation Choke Point” (Cocheo, Steve., 2013). The investigation aims to prevent fraudsters from accessing consumer bank accounts by choking off their access to the payments system. Its effects have been felt by banks, payment processors and companies that make short-term consumer loans over the Internet, with some industry officials arguing that at least some of the affected online lenders are legitimate businesses. According to the American Banker, state bank regulators are expressing their concern that the DOJ and federal bank regulators "Operation Choke Point" is attacking more than the bad guys that the operation is intended to target (American Banker., 2014). Banking regulators in states that allow payday loans have become concerned that legally operating lenders are losing their banking relationships as a result of the multipronged federal effort. Locally, Missouri Bank has become a part of a class action RICO (Racketeer Influenced and Corrupt Organization Act) lawsuit (Hudnall, David., 2013) stating they “consider the lawsuit to be without merit, and… will vigorously defend against it” (Hudnall, David., 2013). This RICO lawsuit involves multiple banking and ACH processing companies throughout the U.S. Due to the high volume of ACH transactions that are processed daily from any online lending company and the related bank fees (charged to the lenders, not the consumer), the industry has been appealing and profitable for banks as well. With the launch of “Operation Choke Point” banks began dropping their online lending customer as little as a week’s notice (Okun, Sarah.).

By 2013, prior to the DOJ investigation, the boys club of online lending was booming in Kansas City with call centers, lending, and collections companies throughout the metro employing several hundred Kansas City residents. Within weeks of the announcement of the investigation and the resulting destroyed banking relationships, the online payday lending business had all but dried up. The cash flow had come to a total halt. Compliant companies like LTS Management with a multi-million dollar portfolio had nowhere to process their customer payments (Okun, Sarah.). A year after the launch of “Operation Choke Point”, call centers are all but shut down. An industry that used to employ several hundred Kansas City residents now employs dozens. In an attempt to stamp out fraudulent lending, the DOJ has crushed an entire industry. This investigation has become a heavily discussed topic in the business banking industry. The Bank Lawyers Blog has recently published several articles addressing the issue. In one of their more recent posts, Margaret Liu, senior vice president at the Conference of State Bank Supervisors was quoted:

“The worry is that banks — in the face of growing pressure from federal banking agencies and the Department of Justice, which is operating an investigation known as Operation Choke Point — are severing ties even with licensed payday lenders… This is a troubling development… ”she said during a panel discussion at the spring meeting of the American Bar Association's business law section. "It is one thing to be ensuring that a business partner, the client of a bank, is operating legally," she said. But a line is crossed when a payday lender "is being denied banking services because of concern about a federal agency advancing its own policy agenda, beyond appropriate supervisory responsibilities" (Cocheo, Steve., 2013).

So, as the investigation moves forward and the complaints become louder from both bankers and the OLA, it seems likely that the DOJ should ease up on the restrictions. While it is obvious that there is an issue with corruption and racketeering in the payday loan trade, the DOJ needs to work on finding a way to prosecute the wrongdoers that doesn’t choke out the legally operating entities. Payday loans always have been and always will be a hot topic for political morale and business ethics. Regardless of the emotions the topic stirs, payday lending is just part of the free enterprise system. Instead of focusing on efforts on shutting down an entire industry, the DOJ and FED need to pool their efforts into effectively regulating the industry in a way that reflects fair business practices.

Citations
1. Caldwell, Miriam. (2014). What Is a Payday Loan? About.com. Retrieved from http://moneyfor20s.about.com/od/typesofdebt/g/payday_loan.htm
2. Watson, Stephanie. (2014, April 27). 10 careers for people who love to travel. HowStuffWorks.com. Retrieved from http://money.howstuffworks.com/10-careers-people-love-travel.htm
3. Shree, Apurve. (2013). Different Types Of Payday Loans. Streetdirectory.com. Retrieved from http://www.streetdirectory.com/travel_guide/151833/payday_loans/different_types_of_payda y_loans.html

4. PayDayLoanpay.com., (2011-2014). Payday loan in the USA. PayDayLoanpay.com. Retrieved from http://www.paydayloanpay.com/loans_in_the_usa.html
5. Online Payday Loans (2014). The history of payday loans. Cash Loans. Retrieved from http://cashloans.org/history-payday-loans
6. Wikipedia. (2014). Payday loan. Retrieved from http://en.wikipedia.org/wiki/Payday_loan
7. Chadwick, Danny. (2012). The pros & cons of payday loans. TopTenREVIEWS. Retrieved from http://payday-loan-service-review.toptenreviews.com/las-vegas/the-pros.html
8. NJ Highland Council. Payday loans: pros and cons. NJ Highland Council. Retrieved from http://www.njhighlandscouncil.org/payday-loans-pros-and-cons.php
9. Jones, Liz. (2014, March 26). OLA statement. OLA Online lending alliance. Retrieved from http://www.onlinelendersalliance.org/ 10. Herbert L. White. (2013, February 28). Survey reveals payday loan demographics white women, blacks among the most likely users. The Charlotte post. Retrieved from http://www.thecharlottepost.com/index.php?src=permalinks/comments:_Survey_reveals_payday_loan_demographics 11. CFSA. Customer demographics. CFSA. Retrieved from http://cfsaa.com/about-the-payday-advance-industry/customer-demographics.aspx 12. Rust, Adam. (2012, July 9). Four Interesting Findings about Payday Lending. Bam Talk. Retrieved from http://banktalk.org/2012/07/09/four-interesting-findings-about-payday-lending-demographics 13. Carrns, Ann. (2013, February, 27). Why borrowers use payday loans. NY Times. Retrieved from http://bucks.blogs.nytimes.com/2013/02/27/why-borrowers-use-payday-loans/?_php=true&_type=blogs&_r=0 14. Morgan P. Donald, Pan J. Kevin. (2012, February 8). Do Payday Lenders Target Minorities? Liberty street economics. Federal Reserve Bank of New York. Retrieved from http://libertystreeteconomics.newyorkfed.org/2012/02/do-payday-lenders-target-minorities.html#.U1vX8VVdWSo 15. (2013, February). How borrowers choose and repay payday loans. Payday lending in America: Report 2. The PEW charitable trust. Retrieved from http://www.pewstates.org/uploadedFiles/PCS_Assets/2013/Pew_Choosing_Borrowing_Payday_Feb2013.pdf 16. Lohrentz, Tim. (2013, March). The net economic impact of payday lending in the U.S. Insight. Retrieved from http://www.insightcced.org/uploads/assets/Net%20Economic%20Impact%20of%20Payday%20Lending.pdf 17. CFBP. Short-term, small-dollar lending. CFBP Examination procedures. Retrieved from http://files.consumerfinance.gov/f/2012/01/Short-Term-Small-Dollar-Lending-Examination-Manual.pdf 18. Kansas City Star. (2013, September 24). Kansas City area taking the lead in the online lending industry. CCO. Retrieved from http://www.cco.org/news/coverage?id=0095
21. Hudnall, David, (2013, December 3). How KC's wealthiest enclaves became a shadowy nexus of predatory lending. Pitch News. Retrieved from http://www.pitch.com/kansascity/payday-loan-industry-scott-tucker/Content?oid=4044440&showFullText=true
22. Bloomberg Business Week. Retrieved from http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=49 922682
23. Okun, Sarah. Personal knowledge.
24. Cocheo, Steve. (2013, April 27). FDIC "Clarifies" Guidance. Bankers Hub. Retrieved from http://www.banklawyersblog.com
25. American Banker (2014, April 28). Retrieved from http://www.americanbanker.com/gallery/timeline-operation-choke-point-1066360- 1.html
26. Hudnall, David, (2013, December 10). Cashing Out: The Usury Suspects, Part 2. Pitch News. Retrieved from http://www.pitch.com/kansascity/usury-suspects-part-2-payday-loans-del-kimball-edata-solutions/Content?oid=4055851&storyPage=2

Similar Documents

Premium Essay

Payday Loans

...Payday Loans: Helpful or Hurtful Joseph Santini Monmouth University I. Introduction There is a new trend in lower income communities in the United States called payday loans. The popularity of getting payday loans to help to pay off utilities and short term debts. These loans have become controversial and brought on speculation of the ethics of the loans and their practices. There has been legislation brought through state senates on this issue but with heavy lobbying have not be able to see the light of day. The tactics of these lobbyists have also come into question. The overall question to be answered is if payday loans are good for this country. II. What are Payday Loans? Payday loans are defined on Investopedia as a short-term loan with a small borrowing amount and a high rate of interest. The way it works is the borrower writes a post-dated check for the borrowing amount plus a fee for immediate cash. The lender keeps the check until the agreed date which is normally the borrower’s next payday. These loans are also commonly called cash advance loans or check advance loans. (Investopedia) These are attractive to lower income community because the loans offer them money right away before they earn it. The feeling of having physical cash in their hands makes them confident in themselves. This system is great if you can pay the debt off quickly but if you take just a small amount of time to pay the loan the debt can pile up. This is because these loans......

Words: 3266 - Pages: 14

Premium Essay

Payday Loans

...A payday loan is also known as a cash advance loan. It is a short term loan, which can be obtained for emergency purposes. In order to acquire the loan, one has to have; proof of income, a photo and the pay stubs. A payday loan is a short term loan, that can be obtained by a person who is faced with an emergency that requires immediate cash. The loan is also referred to as a cash advance loan. In most occasions, there are a few prerequisites while applying for this loan. These include: a proof of income, photo recognition and the previous pay stubs. Borrowing this loan needs a personal check that is post dated to be written to the lenders of the payday loan. Basically, the exact terms of the loan are evident in the relevant legal documents being presented by the lender. This indicates the annual interest rates late fees and financial charges. Usually, the date in which this loan is due is similar to the date of the borrower's paycheck. Moreover, this loan is flexible and can allow the borrower to extend the terms of the loan when he or she is unable to meet the payment on the due date. This loan is an excellent option for immediate cash; however, the borrower should have the capacity to repay the loan when the date is due. Payday loans feature late charges and high interest rates. This implies that, the interest accrued may equal and even at times exceed the principle amount borrowed. This may be as a result of unregulated interest rates since the loans are from......

Words: 748 - Pages: 3

Free Essay

Payday Loans Article

...volume of high risk loans that were being bought and sold by financial institutions. The Dodd-Frank Reform would prevent financial institutions from issuing predatory and high risk loans. Richard Cordray was appointed by President Obama while Congress was in Winter 2011-2012 recess. The reason for this unorthodox appointment is that the Republican Representatives are against regulations and would not have passed the appointment. Richard Cordray will focus on the following provision in the Dodd-Frank Reform: “Consumer Protections with Authority and Independence: Creates a new independent watchdog, housed at the Federal Reserve, with the authority to ensure American consumers get the clear, accurate information they need to shop for mortgages, credit cards, and other financial products, and protect them from hidden fees, abusive terms, and deceptive practices.” Richard Cordary will target Payday loans first. Payday loans are short term loans that are secured by a future paycheck. The banks typically charge $10 per $100 borrowed for 10 days or 10% every 10 days. The banks claim that this high rate is justified because of the high risk clients. The actual default rate is between 3 and 4 percent. This is because Customers must have checking accounts and must have their pay or benefits check directly deposited into that account. The maximum loan term is 30 days and the maximum loan amount is usually $500. If the direct deposits are not sufficient to repay the loan within 35......

Words: 348 - Pages: 2

Premium Essay

Legal and Ethical Issue Involving Payday Loans

...Hutcherson November 27, 2011 Legal and Ethical Issues Concerning Payday Loans * Intro * What is a payday loan? * Who applies for these types of loans? * Where can you apply for a payday loan? * #1 – Legal and ethical issue concerning payday loans? * #2 – Legal and ethical issue concerning payday loans? * #3 – Legal and ethical issue concerning payday loans? * Legal and ethical issue concerning payday loans #1 * State the issue * Explain the issue * Give a solution * Legal and ethical issue concerning payday loans #2 * State the issue * Explain the issue * Give a solution * Legal and ethical issue concerning payday loans #3 * State the issue * Explain the issue * Give a solution * Conclusion * How can payday loans be beneficial to people? * Do I agree with payday loans? * Give my opinion on payday loans With today’s economic climate, opportunities and fast money are the norm in our current society. Payday loans and instant cash are a part of our business institutions as a place for banking and quick fixes to paying due or past due debt. A payday loan is a, “short-term loan, based on a borrower’s check or future deposit, such as a direct deposit from an employer” (Herrfeldt, 1999-2011). Payday loans are located all over the U.S., but are, “…legal in 35......

Words: 2785 - Pages: 12

Premium Essay

Payday Loans

...Denew Assignment Accounting Assignment 2: Manufacturing Overhead Borealis Manufacturing has just completed a major change in its quality control (QC) process. Previously, products had been reviewed by QC inspectors at the end of each major process, and the company's 10 QC inspectors were charged to the operation or job as direct labor. In an effort to improve efficiency and quality, a computerized video QC system was purchased for $250,000. The system consists of a minicomputer, fifteen video cameras, and other peripheral hardware and software. The new system uses cameras stationed by QC engineers at key points in the production process. Each time an operation changes or there is a new operation, the cameras are moved, and a new master picture is loaded into the computer by a QC engineer. The camera takes pictures of the units in process, and the computer compares them to the picture of a “good” unit. Any differences are sent to a QC engineer, who removes the bad units and discusses the flaws with the production supervisors. The new system has replaced the 10 QC inspectors with two QC engineers. The operating costs of the new QC system, including the salaries of the QC engineers, have been included as factory overhead in calculating the company's plant-wide manufacturing-overhead rate, which is based on direct-labor dollars. The company's president is confused. His vice president of production has told him how efficient the new system is. Yet there is a large increase in...

Words: 845 - Pages: 4

Free Essay

Payday Lending: Perfunctory or Predatory?

...Volume 5, Number 6 Payday Lending: Perfunctory Or Predatory? Annie Schafter, University of Minnesota, USA Shee Wong, University of Minnesota, USA Stephen B. Castleberry, University of Minnesota, USA ABSTRACT Payday lenders are becoming more common across America as they meet the unique needs of consumers unable or unwilling to use the services of more traditional lenders. But many have claimed that certain of their practices are unethical. Do payday lenders take advantage of those less fortunate in our society? Are their fees exorbitant, or are the fees merely a fair return given the risk the payday lenders are incurring? This case looks at these and other issues surrounding the payday lending industry. Keywords: payday lending, finance, interest rate, ethics INTRODUCTION I n the last 15 years, cities around America have seen a dramatic rise in the number of payday lending stores open for business. Today there are over 22,000 payday lenders operating in the 39 states where payday lending is legal. To put that number in perspective, there are 13,700 McDonald‟s and 7,300 Burger Kings in the U.S.—simply put, there are more payday lenders than McDonald‟s and Burger Kings combined (Weston). But why? As traditional financial institutions tighten up loan requirements and drop smaller, less profitable loans from their books, payday lenders feel they are filling a substantial need in the communities they serve. They make the process of getting a short-term loan without a lot......

Words: 5139 - Pages: 21

Premium Essay

Cash Connection

...strategy either is working or not working? The pros of Cash Connections current strategy is that the loans are relatively easy to obtain, in most instances a credit check is not necessary in order to be approved for a payday loan or cash advance, a payday loan or cash advance requires no collateral, payday loans and cash advances often require less paper work than conventional loans, you can locate a payday loan or cash advance of the company close to home and online, and payday loans provide quick cash when unforeseen circumstances arise. The cons of Cash Connections current strategy is that the payday loans and cash advance can be very expensive i.e. having a 500% interest per year or more, if a borrower does not repay their payday loan or cash advance and keeps on extending the loan it can cause lots of debt fees, sometimes payday loans and cash advance companies utilize unscrupulous, unethical and illegal means to collect default loans, payday loans don’t solve long-term budgeting problems and only solve a short-term solution, all states don’t accept payday loans and cash advance, a lot of the companies make the borrowers sign contracts that are favorable to the company instead of the borrower. There is evidence that has proven that this strategy has worked. For example in North Carolina and Georgia studies have found out that since they have eliminated payday-lending loans hay have more bounced checks, complained about more lenders and debt collectors, and have filed......

Words: 618 - Pages: 3

Premium Essay

Case Ana.

...Article Presentation Paper : Money Mutual Payday Loans HRM587 Managing Organizational Change Keller Graduate School Management, DeVry College of New York Professor Shashon Miles Introduction The main issue that necessitated the need for the article to be written was the lack of marketing ethics by Money Mutual. Money Mutual failed to provide proper information to its customers and went a step further to hide behind Montel Williams who was their celebrity endorser. They used the goodwill gathered by Williams over the years to convince the individuals that their payday loans were legitimate. It is important to note that Money Mutual were not the actual lenders, they just connected the lenders to customers who they captured from their lead capture pages. Payday loans can be beneficial to its consumers because it affords them access to emergency loans that they may not be able to obtain from the mainstream lending institutions. Unfortunately, the companies that offer payday loans exponentially overcharge their clients with total disregard to state laws. This is categorized as unethical practice and should be shunned by the government and other lending institutions. Selling Source does business as Money Mutual an online marketplace that matches interested consumers to potential lenders in the specialty consumer finance industry. Selling Source has a portfolio of five industry-leading companies which provides extensive, customizable solutions to develop and......

Words: 3246 - Pages: 13

Free Essay

Cash Connection Business Strategy

...Recommendations Cash Connection is a payday lending institution looking to differentiate itself from its competitors and acquire a large portion of the payday lending industry in order to escape the ill-effects of the impending regulations imposed by the government. The payday lending industry is highly competitive and the task of gaining a large hold on the market is not an easy task. This is why the company seeks to develop a strategy that can efficiently achieve results that not only put Cash Connection on top of the market but also keep it there. Cash Connection has proven that being the first store in a new market is typically the one most profitable, with secondary stores cannibalizing the first and decreasing over profitability of the group. Despite the fact that there are untapped markets, it would seem that expanding is not the best option right now. Cash Connection has shown a decline in profitability for the past few years that would make opening more stores impractical due the financial burdens they would place on the company. That doesn’t mean that expansion has to be counted out, it just cannot be the focus of the strategy as a whole. A strategy that increase the revenues generated by existing stores while taking customers away from competitors would provide the foundation for increasing the number of locations available for Cash Connection to do business. By repeating this cycle, Cash Connection should be able to gain an upper hand on the payday lending......

Words: 3281 - Pages: 14

Free Essay

Persuasive Outline

... On June 1, Rosie Vallejo received a payday loan for $1,000. A month later, the cost of that loan had quadrupled to $2,000; a year later, the cost of the loan was around $20,000. A. Rosie has fallen into what critics of payday loans have called a “debt trap.” B. Though they claim that they desire to help their customers get, payday loan stores are actually in the business of creating debt traps. II. Why would someone take out a payday loan? A. Presently, a large portion of the United States workforce is either un- or under-employed. According to the Bureau of Labor Statistics, “ “ (Bureau of Labor Statistics, 2014). B. At the same time, the cost of living continues to rise. According to Source X, cost of living increases X% a year. (Source X, 2013). C. Payday loan stores have profited greatly from this situation, with X number of stores opening in Louisiana in the past ten years (Source Y, 2014). D. Recognizing the problem, the Louisiana legislature attempted to pass a law in April of 2014 that would limit the number of payday loans any one person could take out (Source Z, 2014). The resolution failed, and the problem persists. E. Though I’ve never taken out a payday loan myself, I understand the need for a bit of financial assistance every once in a while. a. I hit up my parents often for money/I work two jobs/etc. b. My research on the payday loan industry has shown me that payday loan stores provide a bitter pill......

Words: 1047 - Pages: 5

Free Essay

Predatory Lending

...Sub-Prime Mortgage and Payday Industry Andrew Huppman Bloomsburg University Author Note This paper was prepared for Markets and Institutions, Finance 323, taught by Professor Geyfman Abstract Predatory lenders are growing at an alarming rate; in this paper I will provide an examination of predatory lending patterns and the effects on the markets and consumers. Predatory lending is defined as the practice in which a loan is made to a borrower in the hope or expectation that the borrower will default. (Predatory, N.D.) The market for short-term loans have only been around for the past twenty years, however, has expanded at such a rate that there are now more short-term lenders in America than there are Starbucks and McDonald’s. (Center, 2011) Borrowers of this financial service lack necessary information to choose financial products, do not see themselves as having any other financial options, and are enticed by the ease of approval. Predatory lenders are not concerned with the risk. A subprime loan can be approved with as little as proof of a pay stub and requires no credit checks. Most loans are short term which tricks consumers into believing their costs will be minimal. In reality, these short-term rates force borrowers to pay annual percentage rates (APR) exponentially larger than anticipated. In today’s market there is a wide variety of predatory lending practices. The main culprits are predatory mortgage lending practices and payday loans. Predatory Mortgage......

Words: 2802 - Pages: 12

Free Essay

Alternative

...transmitters, car title lenders, payday loan stores, pawnshops, and rent-to-own stores are all considered AFS providers. To sum things up, Alternative Financial Services are basically ways to receive money without using a more traditional way, such as getting a loan from a commercial bank. The different [I would delete “different” – seems repetitive with “incredibly diverse”] types of Alternative Financial Services are incredibly diverse, often described as a melting pot of providers. These different services include car title lenders, pawnshops, rent-to-own stores, and last but not least, payday loan stores. Alternative Financial Services have become increasingly popular since the Great Recession, mainly due to the strict credit regulations among commercial banks. Due to its deep roots in Chattanooga, you will find that I have centered my argument against Alternative Financial Services on the payday loan industry. As of 2006, there were 64-payday loan stores located inside the city limits of Chattanooga. According to a survey conducted by the Social Science Research Network, Tennessee has one of the highest rates of payday lending in the country, with several counties and ZIP codes ranking among the most densely crowded with payday lenders in the country. This type of service is able to loan someone quick cash, however they usually require insanely high fees and/or interest rates. For example, most payday loan stores operate by providing customers loans in low......

Words: 2226 - Pages: 9

Free Essay

Cash Connection Case

...Cash Connection: Are its Payday Lender Strategy and its Business Model Ethical? Situation: In 1986, Allen Franks, President of Cash Connection, opened his first check-cashing store in Shreveport, Louisiana. Not only did Cash Connection provide check cashing and payday advances, they also offered prepaid phone cards, bill payment services, and money orders—serving as Western Union agents to transfer funds for customers. In the early 1990s, payday advance services grew as a result of a strong customer demand and varying circumstances in the financial services marketplace. Recently, the payday loan industry is in a position of stagnation. Due to rapid growth early in its industry product life cycle and an increasingly regulating and rule-laden environment due to stricter government regulations, the industry’s growth has rapidly slowed and is in somewhat of a decline. Complication: The driving forces currently impacting the industry are the prevalence of laws regulating the lending industry, auditing processes to demonstrate compliance and limitations on the number of rollovers allowed and interest rate caps. The federal government has implemented the Truth in Lending Act (APR disclosure), Fair Debt Collection Practices Act (non-aggressive collection methods), The Federal Deposit Insurance Act (ability to charge nationwide interest rates of home state) and the Gramm-Leach-Bliley Act (privacy concerns) to address concern by consumer groups, not necessarily the consumers......

Words: 886 - Pages: 4

Premium Essay

Finance Articles

...Benefits Associated with Bad Credit Loans Bad credit loans are a blessing in disguise for those suffering from bad credit history. People unable to pay their bills or loans on time suffer from a bad credit score that affects negatively on their credit history. There are a number of reasons behind a bad credit history including financial crises, bankruptcy, inability to pay bills on time and many others. Recession is one of the major factors behind bad credit history of the people as they suffer from financial crises due to poor economic conditions and by loosing their jobs. Inflation is another solid reason that leads to poor credit scores. Bad credit loans help you enjoying the privilege of enjoying loans even if you suffer with poor credit history. Bad credit loans provide you financial assistance in a number of critical situations such as paying a sudden and unexpected medical bill, meeting the financial crunch at the end of the month, coping sudden personal financial needs when you run short of money. Bad credit loan is a perfect solution for all the above-mentioned problems as it let you get instant cash in order to fulfill your financial requirements. There are a number of lenders over the Internet and in the offline environment that offer ad credit loans to the people having no or poor credit history. The ultimate advantage of a bad credit loan is that you can instantly get the loan. You don’t need to wait for weeks to get your loan approved as you can get hot......

Words: 7164 - Pages: 29

Premium Essay

Contract Law

...entered into a contract that is completely unethical and unlawful then being able to break that contract is a plus. For instance, payday loans have come under major scrutiny because of the astronomical interest rates. In an alert on its website, the California Department of Corporations said many payday lenders operating over the Internet fail to include an annual percentage rate figure in their ads (Reckard, 2012) The APR, a standard measure of the true cost of a loan, is required by federal and state. California law limits a single payday loan to a maximum of $300 with interest of 15% (Reckard, 2012). The Department of Corporations has sanctioned nine online payday lenders for abuses in 2012 (Reckard ,2012). In this instance, situations like this are beneficial in the mistakes a consumer makes in not reading the fine print. Also, predatory loans have been an issue in regards to mortgages and as a result the banks have offered modifications. In closing, the rescinding of contracts would benefit a consumer more than large corporations. References Jennings, D. P. (2013). Business Law Principles for Today's Commercial Environment . United States : Cengage Learning . Reckard, E. S. (2012, August 2012). California warns of online payday loan risks. Retrieved from Los Angeles Times: http://articles.latimes.com/2012/aug/16/business/fi-mo-online-payday-loans-20120815...

Words: 677 - Pages: 3