Back in July of this year Google started banning ads for payday lenders and other providers of alternative financial services. They said that their policy against “bad ads” explained why this ban took place. Payday loans are usually for a small amount of money – most of the time for $500 or less – and borrowers pay back the loans in about two weeks. The borrowers agree to let the lender either make an automated withdrawal from their bank account on the due date or they use a postdated check to pay their loans off. The payment includes the amount borrowed plus any fees the lender charges.
In targeting payday lenders Google certainly doesn’t stand alone. This industry has seemingly had a bullseye on its back for years now. The Consumer Financial Protection Bureau introduced their proposed new regulations that would put tighter restrictions on lenders. There are even some states that have completely banned payday loans.
To make a long story short – there are plenty of people who seemingly detest the payday lending industry. Why is this?
Some say that payday lenders are taking advantage of poor people. The opponents of payday lending believe that the flat rate fees lenders charge are simply too expensive and that poor people simply don’t have the means to pay off their loans on time. However, those who would like to see the payday lending industry wither away seem to forget that millions of people depend on these loans.
Predatory or High Risk?
A typical payday loan might see a consumer borrowing $300, and then after the loan comes due, paying back the lender $345. That is $15 for every $100 borrowed, and is pretty much in line with the current state of the industry on average. The fee doesn’t seem all that expensive when you consider the fact that payday lenders are lending to higher-risk borrowers. Many payday loan customers are people with low credit scores, lower incomes and without the means to get loans from banks or even lines of credit from credit card companies.
The traditional banks are most definitely not going to make smaller dollar/shorter term loans to this customer base. The credit card companies are not lining up to offer credit cards to these people. And most of these folks don’t have the cash on hand to pay for emergency expenses. Where, then, are they to turn when they need a loan? If you were in their shoes, and your car broke down, what would you do? If you had no cash, no credit cards and no one to borrow from, how would you get your car running again to make it to work so you wouldn’t lose your job?
When you think about it from the perspective of a typical payday loan customer, it gives you something to consider, doesn’t it? The CFPB and others would like to see payday loans go away, or at least see many lenders go out of business, once the new regulations become the law of the land. Where does that leave all the people that take out payday loans regularly – some say between 10 and 12 million a year – when they need emergency cash? This is the scenario that opponents of payday loans must consider. Do they think that the typical payday loan customer doesn’t deserve to have options for emergency loans? Do they even consider the fact that limiting access to payday loans may force some families into circumstances that are far worse than being in debt for a few weeks? It certainly doesn’t seem that they do, does it?