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Revisiting the way banks, credit unions and nonbank lenders operate (and collaborate) will offer choices, protections and a path to greater financial security.
February 18 -
The traditional payday loan structure should cease to serve as the standard by which innovation in this credit space is measured.
February 12 -
Developing new online platforms to lower APRs to 365% is a waste of resources. Instead, lenders can tackle the payday problem by partnering together, cultivating loyalty and capping expected default rates.
February 12 -
Several tech startups have made short-term credit the focus of their business models. But could a product so universally frowned upon ever achieve mainstream acceptance?
January 30
A search under the term "payday loan" is guaranteed to net at least one negative news-piece on the product daily.
Opponents of this innovative product have seized the narrative simply by repeating a few misleading words: "triple-digit interest rates." Pundits and politicians subsequently transform this distortion into a trope, and a trope into needlessly restrictive public policy. Consumers who
As the CEO of a firm that brokers private equity capital to nonbank firms including payday lenders, it is disheartening to see many activists, journalists, and politicians refuse to acknowledge that innovation and marketplace competition, not legislation, lower borrowing costs. Yet, this same triumvirate seems intent on destroying innovation rather than encouraging it, by excoriating banks that have created a cheaper alternative.
US Bank, Fifth Third, and Wells Fargo appear to understand that the payday loan default rate is virtually eliminated by requiring borrowers to have payroll direct deposit. By pulling principal and fees at the moment of payroll deposit, the banks are instantly repaid. As defaults are the primary expense associated with payday lending, banks thus gain a price advantage over payday lenders, which cannot protect themselves this way.
Yet this ingenious concept, which can save consumers up to 50% fees, is still not good enough for critics.
The roots of payday lending's problems are twofold. The first is likely ideological, given the political leanings of activists and politicians who oppose the product. Anti-capitalist forces are not new to the battle over certain financial services.
Yet the greater problem rests with the superior messaging emanating from the activists, which is met with weak and obsolete communications from the product's banking providers. "Triple-digit interest rates" conjures emotion in those who hear it. The universal values of fairness and justice, particularly in financial dealings, are so deeply engrained in our culture that these four words are all that are necessary to win over uneducated observers.
To date, banks have failed to reply with
Banks also seem unwilling to attack a significant weakness in activist motive, which is unquestionably mercenary. Most opponents utilize camouflage afforded by creating non-profit organizations with noble-sounding monikers. Regrettably, forming a 501(c) (3) doesn't prevent an entity from engaging in emotional extortion and media manipulation to achieve its ends – even when those ends
One organization
The activist thus has no risk, with its nonprofit status and earnest name, and so begins from a place of emotional credibility. The organizations do not rely on profit, so there is no revenue stream to protect. Thus, the only reason for existence is to destroy commerce and jobs, not engage in productive activity. Proponents seem utterly uninterested in exploiting this truth.
Consumers have choices for short-term credit. They understand the terms. The industry actively supports transparency. Twelve million Americans choose payday loans over other credit repeatedly, according to
Lawrence Meyers is the CEO of PDL Capital, a firm that brokers private equity capital to nonbank firms, including payday lenders. He has written about the financial services industry since 2003.
