Payday loan-check advance business questions.

[Midniteoyl]

If you have managed to miss being informed about banks being forced early on, why do you now wish to become informed? Apparently you are quite happy believing as you do.
According to the post, the pressure is building AGAIN.

Obama administration pushes banks to make home loans to people with weaker credit - Washington Post

But that is about Obama. Obama was not necessarily involved at all in the first go round, but he could be, since the pressure starts locally with massive protests in front of your bank, and that is organized by the "community organizers."

Some banks even made hefty payments to ACORN and other groups if they were planning a merger so these groups would not show up the the regulatory meetings and skuttle the project. This was pretty common at that time...community groups showing up to extort money from businesses a la "Rainbow Push."

So, I believe my statements are fair and truthful about force early on, and bonds later on. I a simple world, one cause leads to one effect, but in the real world, everything tends to morph.

Do you do any follow ups on this stuff? The 'plan' is out there. The 'news' tells you it will save hundreds of thousands of homes. People say 'yay, we are good again'. People get re-elected.

Less than 5% of ALL people who applied actually qualified and got a modification! Banks did NOT have to actually do the loan modifications. Not even Freddie and Frannie. Hundreds of millions were set aside. Hundreds of thousands were actually spent.

Nobody, and I mean nobody, tells the banks what to do..

 

[entropyid]

if a person/LLC/Corp loans money to people who's finance/ credit history indicates they are unable to repay their debt , shouldn't be able to hide behind the argument "they signed a contract"... while tacking on $100 or more per month in penalties and interest, on a $250 credit card.

Absolutely right. A much better solution to 'controlling' payday loans / lenders than capping interest rates would be, in my opinion, to cap the number of times a loan can be rolled over.

If we take the view that payday loans provide a useful and necessary service, ie lend to people that desparately need to get access to cash quickly but who other lending institutions won't lend to, then we can understand the interest rates have to be relatively high because, by the nature of the business - lending to high risk borrowers, the default rate is going to be high.

However when the service become predatory is when a borrower proves they are not going to be able to pay the loan back, say after rolling it over 5 times. At that point the lender should not be able to charge any more interest or roll over fees or whatever. They should only be able to recover the principle sum lent.

Anyway, just a thought. Going back to the OP some other things/risks to consider are:

• it痴 an unsecured loan so there is very little recourse other than legal proceedings if borrowers default on their loans
• regulatory compliance in the relevant jurisdictions
• data protection etc and the cost of complying
• would you need a call centre
• how to assess the creditworthiness of the individuals - this is the biggy, because if you get this wrong your default rate goes through the roof and it's the default rate that is going to decide whether your business lives or dies

By far the largest ongoing consideration, both financially and administratively is collecting users loan repayments and dealing with users who fail to make those repayments. Consequently, the largest set up cost is the real time assessment system you will need to assess each appliant and judge whether to lend or not. These systems are extremely complicated; too strict and nobody gets a loan, too lenient and you lend to people that have no way of paying it back, which is hard for you financially and unfair to the people you're lending to. If you're sticking to good guy in what can be a bad industry you don't waant to lend to people that have no hope of paying it back - not all borrowers are very good at making that judgement.

 

[murphy1244]

I think this was just to stir the pot

 

[TCJatko]

Absolutely right. A much better solution to 'controlling' payday loans / lenders than capping interest rates would be, in my opinion, to cap the number of times a loan can be rolled over.

If we take the view that payday loans provide a useful and necessary service, ie lend to people that desparately need to get access to cash quickly but who other lending institutions won't lend to, then we can understand the interest rates have to be relatively high because, by the nature of the business - lending to high risk borrowers, the default rate is going to be high.

However when the service become predatory is when a borrower proves they are not going to be able to pay the loan back, say after rolling it over 5 times. At that point the lender should not be able to charge any more interest or roll over fees or whatever. They should only be able to recover the principle sum lent.

Anyway, just a thought. Going back to the OP some other things/risks to consider are:

• itç—´ an unsecured loan so there is very little recourse other than legal proceedings if borrowers default on their loans
• regulatory compliance in the relevant jurisdictions
• data protection etc and the cost of complying
• would you need a call centre
• how to assess the creditworthiness of the individuals - this is the biggy, because if you get this wrong your default rate goes through the roof and it's the default rate that is going to decide whether your business lives or dies

By far the largest ongoing consideration, both financially and administratively is collecting users loan repayments and dealing with users who fail to make those repayments. Consequently, the largest set up cost is the real time assessment system you will need to assess each appliant and judge whether to lend or not. These systems are extremely complicated; too strict and nobody gets a loan, too lenient and you lend to people that have no way of paying it back, which is hard for you financially and unfair to the people you're lending to. If you're sticking to good guy in what can be a bad industry you don't waant to lend to people that have no hope of paying it back - not all borrowers are very good at making that judgement.

Let's face it: the person who uses these services has terrible credit. The risk of non-payment is astronomical. In these circumstances, the exorbitant interest rates are justified.

 

[mikehaugen]

I believe there is a place for them... everyone gets down and out sometimes and needs some quick cash. I have been close to thinking about going to one in the past, actually a title loan place probably. I'm sure there are some people that are fairly financially responsible that need something once in a while and have every intent and ability to repay before the interest gets stacked too high. I also agree however that the overwhelming majority of the people that utilize them probably should not.

From the lenders standpoint though, separating one from the other... I guess that's the magic question that if it could be answered there would be a lot lower interest rates and the possibility of being a "good guy" running a place like this would be higher.

 

[mikehaugen]

I don't necessarily think credit has everything to do with it either, I once went to my bank to get a personal loan. I had just bought a house, had a car payment, and had very good credit. I wanted some money for a wood-burning furnace installation project to help save on my propane costs. They would only give me an "unsecured loan" for up to 20% of my net worth... what net worth? I was like 24 or 25 and had just bought a house. My propane savings alone probably could have paid the loan payments in a year or 2. My point is, even with good credit, it is not always easy to get quick cash.

 

[entropyid]

for balance I should point out that borrowers with poor credit is only half the picture, a good proportion of people taking out payday loans don't have bad credit but use them simply to get hold of cash quickly, usually mid to end of month, want to go out but have spent up, take out the loans and pay them back no problem. Many users take out $1000 or more and pay it back when they get paid, assuming mortgage payments etc. I don't think the repayment can amount to more than half net monthly income. A monthly net income of $2000 / $3000 is not someone who is hard up.

 

[EE_Bota]

Do you do any follow ups on this stuff? The 'plan' is out there. The 'news' tells you it will save hundreds of thousands of homes. People say 'yay, we are good again'. People get re-elected.

Less than 5% of ALL people who applied actually qualified and got a modification! Banks did NOT have to actually do the loan modifications. Not even Freddie and Frannie. Hundreds of millions were set aside. Hundreds of thousands were actually spent.

Nobody, and I mean nobody, tells the banks what to do..

Your overly simple conclusion in bold has most likely ruined your ability to observe the facts of that matter.

 

[Midniteoyl]

I guess... But, they still did not do any loans they didnt want too.

 

[EE_Bota]

I guess... But, they still did not do any loans they didnt want too.

What about the process of "Redlining." That is unlawful now. But the banks were doing it, so apparently they didn't want to make loans across the "red line" they drew on maps.

If we believe your statement above, then that act that wiped out Redlining had a 0% success rate.