Payday Loan Lowdown

This had to happen. I mean how long can an industry take the badgering meted out to it and not retaliate? And for what? Lending money to adults who can vote, who can marry, procreate but don’t know how to take care of their finances? I mean this whole thing is getting out of hand. The country first makes us believe that we live in a free world where all our decisions are our own and that we must suffer from the repercussions if our decisions are bad. And then when a few guys go and make a mess of their finances, the government, Defense Department, Pentagon and who-knows-what-else step in and paint the lender black. Not fair I say!

So finally, somebody had the gumption to stand up to these bullies. Sorry guys, got carried away — I am referring to a recent decision by Advance America, Cash Advance Centers to cut off loans to active military personnel. Thestate.com reports:

The new policy, which takes effect Oct. 15, comes after the Department of Defense released a report last month that stated payday lenders target military personnel and that predatory lending undermines military readiness and harms morale. Ken Compton, chief executive of Advance America, said Monday the policy is intended “to remove any perceived distraction to members of the military.” His company maintains it does not market to military personnel.

Read more: Company ends military payday loans

Thank goodness, there are some of them out there in Pennsylvania who are not waiting for some kind of judicial intervention. They have decided to pull up their socks and do something about the payday menace. And that too with an organized front — finally, credit unions seem to be getting their act together. (Whatever took them so long to think up this plan? Especially when there already are similar programs operational in other states!!)

You know, I used to write about credit unions being good alternatives to payday loans. But they were so boring, so goody-goody that I couldn’t go beyond explaining a little about them. I mean, they weren’t doing anything to be in the news whereas the ‘wicked’ payday loans were in the limelight ALL THE TIME. Well, these guys, at least some of them seem to have woken up finally. (Better late than never, I say)

Thirteen credit unions recently signed up for the Pennsylvania Credit Union Association’s new ‘Better Choice’ program. This program aims to provide members statewide with an alternative to payday lending — one that provides the small amounts of cash they need. There’s more: they will teach financial skills and even provide a little savings. Whoopee! Better Choice may debut by late this year.

So how does it actually work? In this program, members can take out installment loans of up to $500 for a maximum of 90 days. You’ll have to pay a $25 application fee and 18 percent annual percentage rate interest. Ten percent of the loan amount will be deposited into a savings account in your name. This means if you take a $1000 loan, $100 will be saved.

Show me one man who has been dragged unwillingly into a payday loan center, forced to sign a check and take the money that is offered to him. The authorities want to play the good guys and so have come out in full force against payday lenders. But there is one simple fact that they overlooked. No payday lender has badgered people to come to them and use their services. Payday lending does not involve shoving money down the pockets of unwilling people.

Only those people who need money urgently and have a regular job, through which they can repay the loan, are eligible for a payday loan. Of course there are people who find it difficult to repay their loans and fall into a debt trap. But that involves a deeper malaise — one of free spending without proper saving education. So when the authorities are trying to oust payday loan centers, they are trying to cure the symptoms of the problem and not its root cause. What is the need of the hour is to educate people on how to spend within their means and save some for a rainy day. Once that is done, payday loans will not seem like a big problem.

Some credit unions in Pennsylvania are planning to provide members statewide with an alternative to payday lending. Thirteen credit unions have signed on so far for the Pennsylvania Credit Union Association’s new "Better Choice" program. Pittsburghlive.com reports:

Here’s how it works: Members will be able to take out installment loans of up to $500 for a maximum of 90 days. There’s a $25 application fee and 18 percent annual percentage rate interest. And 10 percent of the loan amount — $50 on a $500 loan — is deposited into a savings account in the member’s name.

Read more: ‘Better Choice’ may be offered

Things are really hotting up for the payday industry as Capitol Hill mulls a nationwide cap on the interest rates lenders can charge servicemembers for loans, a measure the Defense Department is pushing to protect its force. These loan centers are said to have sprung up like dandelions around military bases. Hilltoptimes.com reports:

The expanded education effort, launched last year, reached more than 400,000 servicemembers and their family members in 2005. In announcing the program, John Molino, then the deputy undersecretary of defense for military community and family policy, noted the wide use of payday loans within the military has the potential to impact mission accomplishment. “If you’re in debt, you have other things in mind,” he said. “You’re doing things other than concentrating on the mission; maybe you’re taking on other employment. The effects are long-lasting and go deep into a person’s performance. It affects unit readiness.”

Read more: Lawmakers, DOD take aim at payday loan sharks

Fine, our wages don’t carry us through the month and as expenses rise, it has become increasingly difficult to make ends meet. To top it your mortgage loan may be squeezing you dry while you attempt to help your child pay his/ her college fees. Yes, times are bad. But does that mean we let go of ourselves and borrow left, right and center with no thought of the future? Well, if you thought this is going to be another sermonizing session, think again. While surfing online I stumbled on some frugal living tips. While some of them are way too much, there are others that sounded fine to me. I especially liked the tips on buying gifts cheap — gift giving is a national malady in our country and we can go to any extent to spread the holiday cheer—even lose all our savings in the bargain. So I think all of us could do with some tips since the great gift-giving season is just a few months away, I thought I’d share some of these tips with you.

Go Out Of Your Way: Try shopping in places you wouldn’t normally go to. For instance, you could find real gems at second hand stores, garage sales and flea markets for very little cash. Don’t worry about the fact that you’ve bought it at such places — remember that worth, just like beauty, is in the eye of the beholder.

Go online: Have you ever tried to buy something at online auctions and bargain places? Keep an eye on them throughout the year and you are sure to find some really superb bargains. A word of caution here: It’s easy to get carried away at an auction, so concentrate on gifts and nothing more or you’ll end up losing all your money.

Make them: You have a skill like knitting or carpentry… etc, put it to good use. You could make so many things like afghans, wooden toys, quilts, socks, blown glass ornaments, furniture, wrought iron fireplace tools… whatever you can do, do it.

This payday loan drama that has been playing out for some time now has me totally confused. First there were reports that there were too many payday lenders near defense establishments. Then we came to know that our soldiers were in not too good financial shape thanks to these usurious, wicked payday loans. Then suddenly the Defense Department comes out with a study that shows that payday loans are having an adverse effect on our armed forces. And before you knew it, the Pentagon had also jumped into the fray. Now, Dr William Brown Jr, an economist claims that the threat that these loans pose is overplayed. Forgive me if I sound confusing. Thing is I am a bit wonked up myself.

So how do we stand now? Over the past two years Dr Brown has conducted research on payday lending, military compensation and the use of payday loans by military personal. The study results show that military enlisted personnel who have had a payday loan repay them more quickly than their civilian counterparts. RTOonline.com reports:

There is little evidence that military users of payday loans use these loans as a substitute for longer term credit. Given the relative low overall default rate for such loans in general, the claims of some opponents to payday lending that payday loans are a threat to military readiness appear unsupported.

Read more: Economist Challenges DoD Study on Payday Loans; Banking Committee Testimony

Credit unions have been reporting a disturbing trend lately: Thousands of credit union customers were turning to payday outlets for small loans to be repaid with their next paychecks. To counter this problem, the Filene Research Institute is working with credit unions in Ohio, Maryland and Wisconsin to design alternative loans and will expand into 10 more states next year. Usatoday.com reports:

It is also encouraging credit unions to offer check cashing, international wire transfer and other services now offered by high-cost firms, along with credit counseling. "Payday lenders stepped in and built a niche very nicely, but very expensively," says Lois Kitsch of the Filene Research Institute. "Credit unions have a very difficult time … because they have a very real problem lending to get people from paycheck to paycheck."

Read more: Breaking the cycle of payday loan ‘trap’

This was something that needed to be done long ago. Rather it shouldn’t have been encouraged in the first place. Agreed payday loans have their benefits, but the minus points outnumber the pluses. So how could nursing homes operate on-site payday loan centers? Thankfully, this will soon be a thing of the past as Missouri Governor Mat Blunt took a strong stand and announced that this practice would not continue any longer.

This practice is not only wrong it is also unethical. How do you justify employers who make money off the wages they pay their hardworking long-term care facility employees? Blunt said long-term care rules allow only activities necessary to or directly related to the administration of the facility to operate within the facility and payday loans definitely don’t meet the criteria.

Lowell Barron, a state Senate leader who used to own payday loan businesses wants to put more restrictions on the high-interest operations if he’s re-elected to the Senate. Barron said he will propose bills that would prevent lending companies from extending payday loans. Wtvm.com reports:

Prohibit payday loan and title loan businesses from operating within five miles of a military installation, from garnishing military salary or wages, and from collecting a loan from a military member deployed overseas for combat.

Read more: Senator who had payday loan firms seeks changes in industry