As founder and CEO of one of the country’s largest privately held fast payday advance companies, Allan Jones would like to disprove some of the payday advance industry myths by using facts …
Our company maintains corporate offices in Cleveland, Tenn. With 1,250 centers in 30 states, we have 75 centers in Tennessee, representing more than 500 employees and their families.
A payday loan online is a small, unsecured, short-term loan due on the next payday. Payday advance, the fastest-growing segment of the financial market, is extremely popular due to ease of use. Never before has a financial product been so widely accepted by consumers, yet so criticized by anti-business consumer groups.
The controversy centers on the misunderstood annual percentage rate (APR), which is irrelevant when applied to anything less than an annual rate. APR is designed to compare transactions from one year to the next; that is, a 7.5 percent APR remains constant whether it is over 10 years, 20 years or 50 years. Quoting a 365-day rate for a 14-day transaction creates an erratic number that has no effect on the dollar cost of the loan.
As an example, a $15 fee for $100 for 14 days equals 391 percent APR. If the consumer pays off one day early, the APR on this cash loan skyrockets to 421 percent. Likewise, if they pay off one day late, it drops to 365 percent, or a 56 percent difference. The 56 percentage-point APR spread becomes inflammatory to consumer groups, yet the fee remains constant at $15 to the consumer.
Another misconception spread by consumer groups is the portrayal of payday customers as “poor and uneducated.” They intentionally confuse payday loan customers with active checking accounts with the “unbanked” check-cashing customers.
Our typical customer is a female schoolteacher with unexpected car repairs, in addition to firemen, policemen, nurses and other hard-working citizens.
A recent study, “Defining and Detecting Predatory Lending,” by New York Federal Reserve Board researcher Donald P. Morgan, noted the seemingly contradictory nature of instant payday loans.
“To economists, this predator-prey concept of credit seems foreign,” Morgan wrote. “If credit is so expensive that lenders are earning abnormal profits (given their risks and costs), why don’t new lenders enter the market to compete rates down to fair levels. ‘Unaffordable’ credit also sounds peculiar; how can lenders profit if borrowers cannot repay?” Every time there is a true, nonbiased report issued, they reach the same conclusion.
In Tennessee, the fee has been capped at $30 since 1996 without a cost-of-living increase. The Department of Financial Institutions’ 2005 annual report showed hundreds of complaints, but none against the “deferred presentment” industry. That shows the current cash advance payday loan law is working.
SOURCE: The Tennessean