Why Payday Lenders Are Under So Much Legislative Pressure
LOS ANGELES, June 7 /PRNewswire/ -- Most people think the reason why the payday advance lending industry is so scrutinized and regulated by state government, and now Washington, is because payday lenders charge high fees and interest rates on their loans. But that is not the main reason. In the article APR%'s Applied To Overdrafts/NSF Fees in a payday loan resource blog, they explain that overdraft fees, also called non sufficient funds (NSF) fees, are much higher than payday loan fees. After a simple calculation, the article shows and compares the APR of overdraft fees and payday loans; you see that the APR of an overdraft fee is more than 10 times higher than that of a payday loan!
So what is it that puts payday lenders under so much legislative pressure? One of the reasons are the Wall Street major banks and financial lending institutions. Last year, Wall Street banks made nearly 38 billion dollars in overdraft fees. Banks have realized that payday lending is a threat to their huge revenue stream as more people apply for a payday loan to avoid their bank overdraft fees. Moreover, with payday lending on the rise, alternative lenders, those that are not payday lenders, also become potential threats to this huge revenue.
Now the banks have gathered up their army of lobbyists, which according to the same payday loan resource, consists of over 1500 federal employees and 73 members of congress on the Washington level, and many more on the state level, to fight all forms of short term lending including payday lending.
Payday lenders are often portrayed to be part of the financial problems facing America, when in reality they have absolutely nothing to do with the financial meltdown. In fact payday lenders were among the few lenders that helped working class Americans when they needed a cash loan. During these hard times most banks are still not lending despite the fact that they've taken so much from tax payers for the purpose of lending.
It is true that payday lenders charge high fees but that's because they take a big risk by providing fast cash loans to people, often without checking their credit. They also have expensive business costs and operation costs (getting applicants and leads). Moreover, with increasing taxes and regulations limiting their business, there is an increased overhead cost on operation which is unfortunately passed to the borrowers. "A payday loan lender is not out there to get people... these (loans) are expensive for the lender too," says a payday loan consultant.
Yet the industry continues to be under scrutiny and overregulated. In many states payday loans are limited and in others totally banned despite the fact that they have helped the American economy. Payday loans help keep the cash flow moving even in our current economic woes, just like any other business, they provide jobs and pay their taxes.