According to a recent study by Scripps Howard News Service, the cash advance payday lending industry pulls in about $35 billion dollars per year. Surprisingly, the average cash advance customer is middle income middle class, using the short term loans for sudden expenses. This controversial industry has been looked down upon by government agencies due to the higher APRs and fees associated with payday cash advances. Recent studies prove that even with the higher APRs and fees, payday advances are generally lower than bank overdraft or late fees.

Perhaps this is why top banks like U.S. Bancorp, Fifth Third Bancorp and Wells Fargo, have decided to adapt a form of payday advances in their own product ines. The Scripps Howard News Service study claims an estimates $7.3 billion in fees annually from payday loan customers. Many banks, finding themselves suffering from economical hardships may not be able to resist the temptation of that stream of income.

Flint Journal reports that Fifth Third Bancorp says the loans range up to $500 up to once per month come with an APR of 120 percent.  That works out to be about $10 per $100 borrowed. Standard Payday Advance Loans usually range from about $10-$20 depending on the lender, state, and local regulations. Flint Journal reports that Fifth Third Bancorp claims this is a product meant to help in emergency situations on a short term basis.

While rates and conditions vary, the banks offering these short term loans offer very similiar terms. Recent press releases indicate payday lenders welcome the banks to the cash advance market, but not everyone agrees. An assembly of demonstrators called N.C. United Power protesting banks mentioned payday loans as one of the products they consider bad practice.

Payday Cash advances are often the only option for unexpected emergencies as opposed to overdrafting, bouncing checks, or paying exhorbitant late fees. Banks entering the market may help reduce the animostiy politicians have shown towards payday lending. They may be able to pursuade states which have banned these loans completely to re-allow them, allowing options for these state’s citizens.

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Congress has set its eyes on a bill called the Payday Loan Reform Act that could make receiving a payday loan a lot more difficult.  The bill is sponsored by democratic Rep. Luis Gutierrez who wants to change abuse in the credit markets by placing a cap on the amount lenders can charge for payday loans.  However, this bill will probably cause more harm than good and reduce the supply of loans available as well as make borrowing more expensive.

State officials produced the legislation with the idea that consumers often don’t realize that payday loans are expensive and are accompanied by a hefty finance charge.  Opponents of the payday loan view the industry as an exploitation of the working poor and are convinced that borrowers are not sufficiently able to pay their loans back.

A study conducted in 2009 by George Washington University discovered that borrowers are not unaware of the expense they are paying.  Payday borrowers are making informed decisions and are rationally deciding on what is the least expensive way for them to meet a financial need.  More than 50% of borrowers stop to consider what their other credit alternatives are.  Before taking out a payday loan many think about using a credit card, bankcard, or even taking out a personal loan.  More than 80% of borrowers do not have enough money in their bank accounts to meet their expenses and use payday loans to avoid overdraft fees that are significantly higher.  Another 90% of borrowers are happy with their decision to choose the payday loan over other credit alternatives.

In 2008, the FDIC revealed an overdraft protection report.  According to the report, the average APR on a checking account overdraft charge was over a thousand percent.  This is more than twice the amount of the average payday loan.  Some banks will even deliberately attempt to increase how frequently customers are charged overdraft fees.  One way banks do this is by clearing large customer checks before small ones.

Despite this information, there is still legislation that could cap payday loan finance charges.  Unfortunately, government caps have proven in the past to have devastating affects.  In the payday-loan markets, price control makes the loans substantially more expensive, reduces the availability, and in some cases forces consumers towards very costly alternatives.

In Colorado, payday loan stores were able to supply people with lower prices, however, legislation in Colorado washed away the benefits of lower interest rates when a cap was imposed on finance charges.  Over time, payday loan stores must charge the maximum price on loans to remain profitable, which makes obtaining a payday loan in an emergency difficult.

The Democratic leadership of the House Financial Services Committee stated that payday loan borrowers need protection because they don’t have access to a mainstream financial system.  However, in most cases, payday borrowers are middle class Americans that have jobs, personal checking accounts, and access to various mainstream financial services.

John Caskey, a finance expert, discovered that the average payday loan borrower is married, young, with children, has a high school diploma and a major credit card.  The only difference between the non-payday borrower and the borrower is a financial crunch and a need for quick, short-term credit.

No one wants to be in a situation where they cannot pay their bills and meet all of their expenses.  However, these situations do arise, and when individuals have plenty of options at their disposal, they are better off.  The choice for a borrower to choose where they receive financial help should be left to the individuals and their creditors.

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The Debate Continues in Legislation and Payday Advances

The managing editor of MSN, Gurav Bhola,  speaks about the discussions that took place in Congress about the benefits of payday loans.

These discussions may materialize in the form of a law simililart to Mortgage reform and  Anti predatory Act of 2007, congressional legislation. If this bill passes it will overrule any state laws governing  mortgages and payday loans. There are some that aren’t too happy with this proposal, among which, there is North Carolina Attorney general Roy Cooper. He considers that North Carolina’s laws concerning the payday industry are stronger than the proposed federal legislation.

It is known that North Carolina has the strongest laws in the matter of payday loans and that is why Cooper is concerned that the federal legislation may weaken state laws. There are no other laws at a national level to govern payday cash advances, mortgages and other personal loans, the Mortgage Act being the first legislation of it’s kind.

The strongest measures were that of North Carolina against the Payday Industry which banned them from doing buisness within the state’s  borders. This drew the attention of  the payday lenders’ national Community Financial Services Association of America (CFSA). They believe North Carolina’s laws are far too strict.

The association argues that by discouraging consumers to access  payday loans the state of North Carolina is doing more harm than good.

They argue that without this option, consumers have to choose more expensive credits like high interest cash advances from credit cards or endure massive bank overdraft fees. They even assert that in states with prohibitive laws, cases of bankruptcies are higher because consumers were restricted in their access to short-term loans. Nevertheless , Cooper holds firm in his conviction that there is no  alternative to the prohibition of payday loans within the state.

Consumers currently have the option of looking online for payday advances or faxless payday loans. Numerous sites can provide access to quick cash only by filling out a form. The emergency loans are given usually within 24 hours, and the the cash fund are transferred within few minutes after their loan application is approved.

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Nation's Large Banks now Offering Payday Loans

Nation’s Biggest Banks now offering Payday Loans to Customers

Payday Lending has become so mainstream that two of the largest banks in Nashville Tennessee have begun offering Payday Loans to their customers. Its true. Us Bank and Fifth Third now have Payday Loan programs for their customers and offer a 35 day payday loan to selected customers who have direct deposit paycheck accounts, and no credit check is required. The loans have an annual percentage rate of 120 percent, or a 10 percent fee. Short-term loans like these obviously have a higher rate of credit than longer-term loans

Tennessee law requires customers receiving a payday loan to have a checking account, a job, and a paycheck.

With Bank One and Fifth Third bank moving into Payday, it is probably only a matter of time that the top ten banks in the nation begin some form of Payday Check Cash advance lending in the future.

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According to an industry insider, this is what a Short Term Loan Customer looks like:

• There are 60 million unbanked or under-banked Americans
• 25 million payday loans a year in the U.S.
• These people exist outside of the financial mainstream
• They have exhausted all resources – friends, family, credit cards
• Banks and Credit unions will not service these consumers
• Online payday customers are very sophisticated:

o   Average age is 43

o   Predominantly women

o   Have a computer and internet access

o   Average income of $45k a year

o   Over half have some college

o   Over one third own their home

o   All have bank accounts

o   All have jobs

• These are not poor people, they are poor money managers
• Studies by the Federal Reserve and several universities show restricting consumers access to payday loans results in a spike in bank overdraft fees, an increase in foreclosures and bankruptcies

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According to the Online Lenders Alliance website, the organization has been around since 2005, when it began working on behalf of the companies involved with the online lending industry. The Organization represents a growing of U.S. based companies offering consumers short-term loans, also known by many as payday loans, cash advance loans, or micro loans.

OLA  suggests that with more and more companies offering these short term loans, many industry people became very concerned that there was potential for lenders to not act in good faith. OLA was formed to protect the industry against the potential challenges posed by inept lenders.

The first step OLA took was to make a standardized set of principles by which loans should be made.
Apparently, all of the OLA member Companies have agreed to their Best Practices and The OLA Code of Conduct to ensure that customers are fully informed, treated fairly, and have access to all lending products and practices in a more responsible way.

While there are thousands and thousands of positive stories from short-term loan customers, OLA indicates that there are still a large number of mistruths and misconceptions about the lending industry. OLA says that one of its objectives is to dispel the myths about the industry, and clear misconceptions with education, and discussion with legislation regarding the industry.

OLA says they have the authority to speak on behalf of the online lending industry to the public, opinion leaders and government officials. Apparently, OLA is staffed by experts in trade association management and highly qualified to take collective action to ensure compliance with antitrust, tax and lobbying laws. Ola states that the issues affecting the industry are extremely complex so they have numerous experts that they consult.

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Payday Loan Lender Success Tips

Leadpile provides the most powerful engine for lenders ever made available. In today’s market, the payday lenders must seek the most efficient marketplace in order to decrease their cost per acquisition, and manage their business growth.

Leadpile’s Centralized Online Exclusive Lead Marketplace / Lead Exchange will place your organization in total control of your Payday Lead purchasing Program. Our goal is to increase your funding rate and decrease the default rate, by having all the resources to generate leads in house, control the affiliates and the traffic source. Being one of the few main sources of payday leads online, we have provided top notch service to nationwide lenders for over 7 years.

• Efficient Screening and Filtering process drives conversions up and waste down
• Enjoy total control over your lead pricing and daily volume
• Buy directly from lead producers: Leadpile is not a lead aggregator or re-seller
• Multiple Lead Sellers compete to provide you the best leads
• Multiple campaigns with multiple Lead Sellers give you power to select leads from those sellers providing you the best leads and the lowest prices
  

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