grabbed headlines by announcing a ban on payday loan ads
starting July 13.
loans charging triple-digit rates seem to be viewed by
Google and others now with the same social stigma as
other dangerous products banned from advertising, such
as cocaine, crystal meth and cigarettes.
can the payday loan see any kind of redemption? Not
likely any time soon.
June, the Consumer Financial Protection Bureau is
expected to roll out new federal rules to address
egregious practices involving short-term loans. After
regulators hold a three-month comment period, the
landscape could change. A few speculate that a new
alternative loan could hit the scene.
Barack Obama’s administration has targeted payday
loans, among other issues, on his regulatory agenda.
Consumer Financial Protection Bureau will hold an a
field hearing about small dollar lending on June 2 in
Kansas City, Mo. Small-dollar loans can involve
annualized interest rates that top 300 percent. Proposed
rules covering payday lending, auto-title loans and some
installment loans are expected to be released in Kansas
loans are one of those things that you know aren’t
good for you but turn to anyway in a jam. Many
consumers, including millennials, need every paycheck to
cover bills in trying economic conditions. And then the
boss makes things worse by cutting their hours and the
paycheck ends up even smaller.
maybe a car repair or vet bill throws a monkey wrench
into the budget. More than 19 million American
households tap into payday loans for short-term credit,
according to the industry.
payday loan is often used by someone who doesn’t have
a credit card anymore or is maxed out and cannot borrow
more money on plastic.
get a payday loan, you often write a postdated check for
the amount you want to borrow — say $300 plus a $40
fee. The check is made payable to the lender. Or you
might authorize the lender to debit your account at a
set date. The time period for the loan can often be 14
that time is up, the lender needs to get back all the
money — the amount you borrowed plus the fee. The
finance charges and fees will build if you cannot pay
off the loan and fees in full.
50 percent of millennials don’t believe they could
come up with $2,000 if an unexpected need arose within
the next month.
are heavy users of alternative financial services, such
as payday loans and pawnshops, according to a research
by the Global Financial Literacy Center at George
Washington University with the support of PwC.
the past five years, 42 percent of millennials used an
alternative financial product, according to the "Millennials
& Financial Literacy" report.
lenders say the need is there and have been critical of
the CFPB’s move to regulate what some call
"fringe financial services."
Fulmer, senior vice president of public affairs for
Advance America, called the initial outline that CFPB
rolled out in March 2015 a "draconian proposal that
will result in the elimination of the industry."
maintains that no alternatives to traditional payday
lending exist and likely won’t exist because banks
make too much on overdraft fees to want to create
another type of product. (The CFPB is considering new
rules for overdraft fees, as well as payday loans.)
America, which has 149 stores in Michigan, maintains
that many consumers have been burned by the hidden fees
at banks and prefer nonbank lenders.
Collins, 48, said he doesn’t have a credit card any
more so he took out a $200 payday loan in mid-May to
cover a utility bill.
don’t do credit cards. They’re predatory. They’re
a lot worse than this," said Collins, who lives in
the Detroit area and works for a steel company.
the way the banks did us seven years ago, I don’t
trust them any more," he said.
was scheduled to work 72 hours this week, so making
money isn’t a problem right now. But his bills are
higher — money was needed for a stepchild’s high
school graduation and prom, a car repair, higher health
insurance costs at work.
paid $29 to borrow $200 and he paid it off in one week.
It was the first time he took out a payday loan, he
said. Plenty of payday loan stores dot area shopping
centers, he said, because many people with far lower
incomes have more trouble paying their bills.
there a way to stop consumers from falling into a debt
trap if they cannot pay off the payday loan with the
very next paycheck? Maybe a middle ground where some
short-term loan options charge far less than traditional
of people are looking for small credit to help pay their
bills," said Nick Bourke, director of the
small-dollar loans project for The Pew Charitable
wants to see the federal consumer watchdog adapt a
proposal where the payment on alternative loans cannot
be more than 5 percent of a borrower’s gross monthly
income. The loan would be paid back over a few months,
not the next paycheck.
said the typical payday loan borrower has a bank account
and a paycheck, maybe from a factory or retail job. And
the consumer can make $30,000 on average — or about
$15 an hour.
run into trouble because their income zigzags by 25
percent or more each month because of job schedules.
hearing more buzz that major regional banks could offer
alternatives, according to reports in the American
Banker. Some say a new lower-cost installment loan could
be priced as much as six times lower than some payday
new product would hinge on the CFPB proposed rules.
Feltner, director of financial services for the Consumer
Federation of America, wants to see the CFPB require
short-term lenders to evaluate a borrower’s income —
and expenses — when making a payday loan.
said more rigorous underwriting is needed because some
consumers couldn’t repay a payday loan anyway because
regular bills already take a large chunk out of their
added glitch can throw a tight budget offtrack.
states have put limits on fees. A payday loan storefront
in Michigan can charge $65 for a two-week $500 loan.
a customer who borrows $100 from a Michigan storefront
will be charged up to $15 for a two-week loan (the
payday lender may provide for a shorter or longer period
— up to 31 days). The customer writes a check for $115
and receives an immediate $100 in cash. But the
annualized percentage rate would approach 390 percent
for a two-week loan with a $15 fee. In Michigan, the
payday lender may charge an additional database
verification fee of 45 cents per transaction.
fees add up, as many loans are not paid off in two weeks
and more loans are taken out. The average borrower can
be in debt for five months. Some consumers can pay $700
in fees over time on what starts as a $500 payday loan.
the discussion on payday lending continues, it’s clear
that no easy solutions will just pop up for those with
big bills, small paychecks and no savings.