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A study has been released indicating that payday lenders are targeting certain members of the community and enticing them to get payday loans. Results of the study, “Ursury Law and the Christain Right,” indicate that conservative Christian Americans are now a prime target. Lenders are extremely outraged and state that their clients represent a broad demographic population and therefore cannot be grouped based on race, sex, or religion.
The fact that lenders provide a service to over 19 million individuals, is an indication that that this is a needed industry. Research shows that payday loan customers tend to be middle-income, educated, working families with half earning at least $25,000 and 58% having attended college. There is also criteria for individuals to be approved for payday loans, such as being employed full time for at least three months and having a valid bank account.
The payday loan industry is providing a viable service to individuals. No particular segment of the population is being targeted. These businesses are available to those with poor credit history or those with immediate short-term financial need.
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Consumers are concerned over the high rates of borrowing a payday loan and many states have prohibited payday lending. What is the alternative for those in need of immediate funds? Life is unpredictable and even those families with an average income sometimes come into financial difficulties and need immediate cash. Payday lenders are providing a viable service to those individuals if they have no where else to turn to borrow funds.
Prohibiting payday lending may not be the solution. Legislators need to focus on the reason individuals are relying on payday loans to meet their financial needs. Alternatives to short-term credit are almost non-existent since those attempts to create alternatives have been unsubstantial.
There is a cap on the fees and rates of interest that lenders are allowed to charge on borrowing. Payday loans are also intended for short-term borrowing which means that they are provided with the intent that individuals will pay back the loan on their next payday. Consumers need to be responsible when borrowing a loan and be aware that it can become costly if they do not pay their loan back in full on their following payday.
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Liberal Party and the New Democratic Party passed a law that ensures strong regulations in the payday loan industry. The new law gives each province the authority to set a maximum rate on the cost of borrowing and balances consumer protection. It also means that those companies leading in the payday loan industry following regulations will remain at the top and those that are not will be put out of business.
The law is great news not only for the consumer but for businesses as well, since this is the first time there will be specific provincial regulations for lending. This means that there will be an increase in responsible lending practices as the lenders become more reputable for their services.
Annually, over two millions Canadians borrow payday loans. The provincial government understands the need for the payday loan product and has a desire to remove those companies that are the least dependable.
By late 2007 / early 2008, most provinces will have set the maximum fees.
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Source:
Community Financial Service Association of America. (2008). News Flash: Payday lending industry apparently targets everyone. http://www.foxbusiness.com/article/news-flash-payday-lending-industry-apparently-targets_489466_1.html
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