The most common allegation against payday loans is that it encourages predatory lending which exploits helpless clients by charging them higher rates. The payday lenders, on the other hand, assert that clients are fully aware of the costs before a contract is signed and that the rates are in concurrence with operating costs.

With the rhetoric on both sides going full throttle, it is advisable to take a balanced look at the statistics with the help of Aaron Gold’s thesis, ‘Payday lending: Grounding the Policy Debate Through Economic Analysis.” In his thesis, Gold concedes that high operating costs do somewhat justify the high rates and although the profit margins for payday lenders are much higher than for traditional lenders, they are not nearly as outrageous as some critics claim.

Regarding the demography of payday loans, statistics point out that traditional banking seems too much of an hassle for the majority especially the lower income classes or the immigrant communities (Douglas Mc Gray- ‘Check Cashers, Redeemed’). The public relations efforts made by payday lenders seemed to have paid off as the payday loan stores appear to be a convenient, one-stop shopping stop for those needing emergency cash.

Also, it is absolutely false that payday lenders prey upon people who do not have the wherewithal to repay. In fact, only those who have a verified steady income are eligible for such payday loans.

Comparing payday loans to taxis, Huckstep says that “Expensive for long trips, but perfectly viable for short distances” (Huckstep, 2007, p. 207). Used intelligently, payday loans can save money for clients over more expensive alternatives.

As for the allegation that payday loans are very expensive, both Gold and Huckstep point out that the rates are very much in keeping with the overall fed averages and customers are fully capable of handling their payday loans when compared with other loans.

Although it may appear that payday lenders enjoy greater profits than traditional lenders it is nowhere as outrageous as critics would like us to believe. In fact, Gold points out that lack of growth opportunities within the payday lending industry has resulted in dramatic decreases in profits.

Paradoxically, payday loans gain from volumes yet over saturation may be a contributing factor in reduced profits. Payday loans also offer a good return on assets and equity as payday lenders require much less operating capital to produce positive returns. The mortgagee crisis in 2008 may have sent the traditional lenders down but payday lenders rallied around to post positive returns on equity.

Gold advises payday lenders to think in terms of, if “store density is a function of price, then a reduction in density would increase loan volume and profit at remaining stores” or reducing density to increase volumes and yet make decent profits. Payday loans are a viable alternative to traditional loans but could benefit from some sort of regulation to ensure equal customer- lender relations.

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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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There have been major setbacks in legislature with a plan to cap rates for payday lenders. Lawmakers think regulation can be done keeping in mind the favors of the industry. The bill proposes to cap rates at 36% and has been assigned to a committee of the lawmakers. It is said that if Payday loans are rolled over many times it may cost the borrower up to 500% annual interest.

The only state which does not have regulations for dealing with payday lenders is Wisconsin. After a hearing on Payday lending, the chairman of the financial committee, Rep. Jason Fields said that a cap on rate is not needed and due to lack of support from Sheridan and the Senate the committee is unlikely to pass a cap. According to him doing something which the Senate will not pass is not justified. Other regulations however will be approved. According to Fields, Poverty was there in Milwaukee even before payday loans.

Although, Gordon Hintz acknowledged his bill might not pass, yet he was of the view that rate cap is best way to regulate the industry. Sheridan’s statement that rate cap went too far was the first setback that Hintz faced last month. Industry said that a 36% cap will throw them out of business.

With four alternative proposals, cap title loans will require lenders to report more information and limit late payment charges and bar on rolling over two week loans thus practically banning it. On Wednesday’s hearing saw much audience with stickers saying ‘I choose payday advance’ lobbying, which was also testified by supporters of rate cap.

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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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Bum Marketing has gained popularity over the last several years. Unconventional in name, Bum Marketing was named after… a marketer who makes decent income, while literally sitting on their “bum”.  This type of marketing involves writing and submitting articles to various websites that are highly trafficked.  Individuals who read the articles are redirected to another website where they are encouraged to buy products or services.  One of the main ways that individuals use BUM marketing is by investing in highly competitive industries like the “short term loan” and “payday loan” industries.

The payday loan industry is one of the most lucrative industries for Bum Marketing.  When creating these articles for the payday loan industry there are certain keywords that should be used for marketing purposes.  This is important because some of the most important components of Bum Marketing are to produce articles optimized with competitive keywords for search engines.

Some of the most common keywords include:

• Cash Advance Loans
• Payday Leads
• Instant Loans
• Installment Loans
• Online Cash Advance
• Payday Loans
• Quick Payday Loans
• Short Term Loans
• Personal Loans

One of the best things about Bum Marketing is the potential to build residual income.  Many people are interested in making money online and trading in a typical 9-5 job for one that provides more flexibility and a promising income.  The more article marketing that an individual does, the more likely they are to have a steady and increasing income based on potential sales that past articles are still generating.  Another way Bum Marketing builds residual income is through advertising income that can be obtained with the high traffic articles.

If you are a Bum or other type of marketer, talk to paydayleads.com about getting trusted payday leads, leads that convert.

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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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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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