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Cash Advance Critics Are Misguided |
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Many states have passed legislation targeting so called predatory lending or cash advance.
This is a clear indication of politicians' willingness to decide what is good or bad when it comes to borrowing money. Very often people with limited resources need short-term cash advance and are ready to pay high interest rates to get them. At tax time, for instance, many people get loans from banks and even tax preparers in advance of receiving their income tax refunds from the Internal Revenue Service. Though, the interest rates are high, but more than 10% of Americans seek payday cash advance. During the past 25 years, this business has burgeoned from $10 billion to $25 billion annually. Payday cash advance has harsh critics. For instance, the so-called Center for Responsible Lending calls them a debt trap. The Consumer Federation of America and even the National Association for the Advancement of Colored People are campaigning against the industry. Lenders of payday cash advance already are regulated by 33 states. Restrictions are already there on interest rates, fees, number of allowed roll-overs, maximum advance, and maximum term. Yet, a couple dozen states are considering new legislation. In several of them the proposals would effectively kill payday lending. Payday cash advance clearly is not a good option for long-term debt, such as home mortgages. If debt is not handled with care borrowers can dig them into a hole. But practically everything in life, if mishandled, can create a problem. Payday cash advances aren't for everyone, but, surprisingly to popular believe, most borrowers are not desperately poor. Rather, they have an average income between $25,000 and $50,000. All have bank accounts; a majority has some college education; almost half own their homes. The payday cash advance industry is gradually gaining recognition with consumers. Banking overdraft (NSF) fee's are typically in excess of $25.00 and put a black mark on your checking record. In those cases a payday cash advance is a responsible solution to a NSF charge. This industry is consumer driven and the growth is nationwide. As the number of payday cash advance outlets in the country is ever increasing, some legislators have worried that the industry is taking advantage of people who are outside the financial mainstream by extending expensive, short-term loans to them. The industry argues that payday lenders fill a niche for people who have a temporary cash flow problem. The loans are a better alternative than bouncing a check and later paying a non-sufficient funds fee of close to $30 to a bank, they say. The common thing is that they face unexpected expenses. But the amount needed is too small and the period is too short to get a typical bank loan. Moreover, to focus on the cost of payday cash advance misses the most important point. Critics of advance payday cash advance overlook the cost of the alternatives. Another alternative is to rack up hefty late fees and interest charges by failing to pay a bill on time or by bouncing a check. People in need of money also might find a more costly alternative. Like a pawn shop or a loan shark. Given these alternatives, a National Taxpayers Union poll found that nine of 10 people considered payday cash advance a useful service. But payday lending critics don't care about people's actual needs and don't believe that people are smart enough to decide what is in their best interest. Actually, what threatens the livelihoods of hardworking families is the money emergencies that payday cash advance help address. Eliminating the means of meeting financial challenges without addressing the financial challenges themselves would make people worse off. Everybody including the members of the payday cash advance industry agree on one thing that such loans are not for everyone and for every reason. But payday cash advance can help those people struggling to meet sudden financial crisis. Moreover, it's borrowers, not self-appointed consumer advocates, who should decide the future of the payday lending industry. |
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