New Chance for Your Credit History?

 
Credit history check is one of the steps in a traditional lending process. And it is universally known than poor credit leaves you with fewer chances for approval, while good credit makes you all the more attractive customer for any lender.


Sadly as it is, nowadays all the more potential borrowers refer to the former group – they either have poor credit history, or none at all. The existing scoring system is not perfect and it leaves a lot of people behind.

Thus, the government is now making an attempt at finding a way to improve the situation and provide more customers with a loan opportunity they haven’t been eligible for before.

Earlier this spring the Consumer Financial Protection Bureau has made a new proposal that involves using “alternative data” as basis for credit score calculations.

Under the term of “alternative data” is meant the information that traditionally isn’t included into a person’s credit report. Among other it includes:

  • Cell phone payments,
  • Rent payments,
  • Cable TV payments,
  • Other related bank account information,
  • Etc.

It is also discussed that some other types of alternative data (not directly related to a person’s financial situation) might also be taken into consideration in the process of credit score formulation (e.g. occupation, education).


At the present moment the bureau encourages both customers and loan industry workers to send their comments on the subject.


Credit scores are also known as FICO scores at the consumer financial market. Strictly speaking, they represent your level of creditworthiness in the eyes of a lender. They are three-digit scores that are calculated with the help of a mathematical formula with the highest score of 850 and a minimal score of 350. However, in the present-day financial situation even 600 score is not always sufficient for many lenders.

Credit scores are calculated by three major bureaus — Equifax, Experian and TransUnion. They also create and keep your credit record with all the major financial information.

One of the things with this system is that it takes into consideration only financial side at large (mortgage payments, credit card repayment history and so on) and it also keeps track of all the “problems”. As a result, a great number of consumers end up with either no credit history, or it is so bad, not one lender will consider it.

It is hard to create a good score, especially when you’ve never owned a credit card. In this respect, having more versatile information at hand is beneficial – a traditional credit score can be improved with some extra bonus added from another sector. This is an alternative way for a consumer to demonstrate and prove their creditworthiness for a lender.

In this respect, some of the credit companies have already started putting these ideas into practice:

  • FICO Score XD has been recently introduced by Fair Isaac (FICO creator). The new system will take into consideration such alternative data as cellphone and cable payments as well as property records.
  • CreditVision Link – a new scoring model that takes alternative data into consideration was also worked out by TransUnion. Apart from traditional financial data the new model creates a score also based on the checking account histories and home address permanence.
  • Besides, about 100 companies are now in the process of testing the new model.

The Consumer Financial Protection Bureau makes an effort at making lending more affordable to everyone and the entire process all the more responsible.

If you have any inquiries about credit scores, here are some useful resources:

  • Free copy of your credit report can be obtained once a year from the three aforementioned credit bureaus at annualcreditreport.com.
  • You can also request your credit score information from your credit card company and your lender as many of them now can grant free access to scores (for a month).
  • If you are willing to comment on the CFPB proposal, you can make it online at regulations.gov till May 19.
  • If you want to read more information on the subject, make a request with the bureau

Arizona Discusses New High-Interest Loan Option

 

As of 2008 state legislation payday lending in Arizona is considered prohibited. However, new proposal has recently been discussed in the Senate and it is the one that suggests some sort of the high-interest credit variation to get back to the state.


Surely, the subject of instant payday loans has always been very tricky (across the entire state). In Arizona proponents of such high-interest loans have tried their luck some time now and failed due to various reasons; however, this year they seem to have been able to gain at least some share of success.

The proposal bears the name of “Consumer Access Line of Credit”, made by Sen. Debbie Lesko to House Bill 2496.

  • It presupposes the offering of a small cash loan option with a maximum APR of 164% and a maximum loan amount of $2,500.
  • This equals to 0.45% a day of interest for a short-term loan.
  • The amendment also suggests that all lenders should run a compulsory check of their perspective customers through a statewide database in order to make sure that the entire amount of a loan does not exceed $2,500.
  • Thus, credit history check will be required.
  • The loan term offered is one year.
  • Repayment plans and freezing of interest rates for struggling borrowers are also required.

The proposal has got a number of opponents as well as proponents.

Democrats call it predatory lenders coming back to Arizona,and they are also backed by Republicans as well.

The old argument is about the nature of online payday loans, as the initial prohibitive measures were meant to protect customers from getting into debt due to high interest rates. However, many people with bad credit history were left with basically no option for any emergency cash instead.

In this respect the proposal lobbyists appeal to the fact that all borrowers should have the choice, the right and access to fast payday loans options with no regards to the state of their credit standing. They should also have an option to improve their credit by making timely payments.


Proponents see payday loans as a more attractive and also more beneficial offer for borrowers than car title and pawn shop loans.

Opponents, however, see it as a threat for low-income residents and they are willing to stand their point.


In 2008 payday loans were prohibited in the state as 60% of voters were against high-interest lending in the state. At the present moment the panel voted 6-4 and the proposal is going for consideration to the full Senate. So, we’ll see.

Google Ads Ban – How’s It Going?

 

Heated discussions around the topic of Google Ads payday loan ban only seemed to stop for some time when recent news has provided more food for reflection.


The company announced its intentions earlier this May and on July 20 the actual ban came went into effect. It was expected that the company is likely to lose some feasible share of its revenue as a result of such an action; however, it does not seem to be the case.

Besides, and what is more intriguing – payday loan companies’ ads go on appearing in Google results. For everyone who followed the entire case, the questions “how?” and “why?” are rather obvious.


Well, the answer is simple – payday loan companies managed to go around the rule and find a loophole; as they frequently do.


Google should be justified for making some effort – one of the company’s conditions for approving a payday loan ad has been compliance with the following terms:

  • indicated interest rates should equal or be lower than 36%;
  • repayment term should not be less than 60 days – for the ads to be displayed.

And it looked like certain doors closed; but actually, they just closed a little. Change the messaging – get approved by Google Ads editors. It is actually pretty simple for the majority of the companies who use online advertising.

As most of these companies do not actually represent direct lenders and neither grant loans nor charge for them, they stand a bit further on this ladder of lending process and can state literally anything about their rates. Such companies generate leads for direct lending companies and, thus, their ads comply with Google payday loan ads policy – rates do not exceed 36% and repayment period equals or is longer than 60 days – in accordance with their description.

Apart form the fine print that states something of the sort:

  • Your actual rate depends … and will be agreed upon by you and the lender.”
  • the lender can provide a different APR than our range.

These tiny sentences provide good example of how one can evade seemingly explicit rules – another example that payday lending companies have many tools for getting around official policy.


There are plenty of such ads to be seen in Google search – looks like everyone from the industry decided to abide by the regulations that he Consumer Financial Protection Bureau’s has been trying to implement for a certain period of time with doubtful success in some cases.

Only they did not; all the fine print with small lines of text make it clear yet another time and again – the real rates can be different.

One of the drawbacks of such manipulations is that it has become even harder for customers to make a choice when it comes to a company. Or, rather, they are much likely to follow seemingly appropriate Google ads that in reality can appear to be so; or not.

The bottom line is that the more action is taken in the direction of payday loan more restrictive regulations, the more the aforementioned industry is likely to find ways to go around these regulations. All the more, Google can ban ads as much as it likes – it is, however, unable to create a very serious shift in the industry that at the present moment uses every tool in its power to oppose the Consumer Financial Protection Bureau’s recently proposed rule.

What happens in reality that although a certain number of alternatives to small cash loans seem to start appearing, the National Association of Federal Credit Unions is among them (with their reaction to the CFPB rule).


However, as it has been said before – and not once – these are meager steps compared with the needs they are supposed to cover. And we are also talking about the industry with a serious lobbying power – the one that has ability to adapt, assimilate and change with regards to new (restrictive) policies – and have all the practices preserved and intact. It’s only left to watch the development of this confrontation.

Payday Loans Are Getting Alternatives

There has been a lot of talk recently about payday loan regulations’ restrictions and the absence of alternatives. However, it does not seem to be the case any more. It looks like that some companies as well as certain non-governmental organizations are trying put their foot into the issue.


Payday loans are notorious for their high interest rates; however, in accordance with the results of study carried out by Pew Research Centre, they are quite popular – 5% of all borrowers tried this credit option at least once. Such figures serve at the very least as an indicator of being in demand.

To some extent they represent (and this is the major and the most ponderable argument from the proponent side) the only credit option that is frequently available to low-income families with little chances of being approved by a bank.

And taking into consideration that payday loan stores outnumber fast food chain restaurants (in accordance to some data) – there is no surprise people are challenged to use them; and the state tries to protect (though, usually without any alternative plan to offer).

However, it looks like at least some initiatives are starting to emerge. Surely, they appear mostly as the result of rivalry and certain marketing competition in the conditions recent economic growth. Thus, we now have an alternative to payday loans; actually, a few.

trueconnectOne of them is TrueConnect payroll deduction loans. This type of credit is introduced by the collaboration of St. Paul-based Sunrise Banks with California company’s proprietary software. The program allows employers to take out 12-month loans that are repaid through payroll deductions.

lendupAnother option is LendUp. This project represents a start-up that aims to challenge payday loan provides. In fact, they offer a variation of options such as financial education, credit history improvement possibility, and so on. They also offer low-cost instalment loans.

One more option that can be used by either potential borrowers, or the ones that have already entered the repayment circle and for some reason it takes longer than was planned. Faith-based organizations are trying to become a part of this market, either.

exodusExodus Lending at Holy Trinity Lutheran Church in south Minneapolis can serve as such an example. The church offers repayment of debts of a borrower once and for all; borrowers, in their turn, are allowed to make monthly installments over the following 12 months. There is no interest rate charged in case of such repayment.

Surely, such communities are unable to help in a massive way; however, the number of 86 families that used the alternative is very good. In other circumstances all these people would have nowhere to go.


Yet again, despite the fact of some alternatives appearing, they are insufficient both in number and in ability to cover the needs of all existing borrowers. There is a chance that they will multiply – in the conditions of all the more restrictive environment for payday loans – that would be only a logical development of small cash loan market.

“Hillbilly Elegy” – Nothing Could Be More Timely

The new story that has already been named a bestseller by many reputable editions – “Hillbilly Elegy”, written by J. D. Vance, is not something you are going to miss. The book represents some sort of autobiography crossed with the analysis of the present-day American social and economical situation.


It has brought on a great deal of discussion recently, unsurprisingly. With all the debate around elections and the course the state is going to take in the nearest future – such narratives are not to be overlooked or neglected. Thus, we have a book that brings all the questions around class, culture and income gap and what not – to the light; sincerely and eloquently on one private example.

The book starts with the story of the Vance’s grandparents who moved from impoverished Kentucky to a more industrial Ohio with hopes for a better future. It further develops into a personal story of the author and his standing from a person from insecure background to the person he has become – moved upward on a social ladder and succeeded both financially and in terms of status.

The book also tells more than his personal story; there are plenty of examples typical for most of the “white working-class” – as the author calls them – representatives. These are his family and his acquaintances, people he worked with or has known. The author discloses the fact (overlooked by most legal and governmental representatives) that a certain segment of the country – and a pretty huge one – still lives below the line and has to face poverty, violence and addiction on a daily basis. He also tells a story of a person who has been able to move up – and how this upward mobility feels.

This books also sheds plenty of light on the question why the Republicans get so much support in this part of the country; and among low-income working-class population in the first place. So does the interview made by Rod Dreher with the author on theamericanconservative.com: “Trump: Tribune Of Poor White People”.


Among all the issues covered in the book there is another one: most people have heard heated debates around payday loans – it is a cornerstone for many. The book can be extremely useful in this respect to those law-makers who are continuously trying to pass all the more restricting laws on the industry.

Following the U.S. News‘ thought: “the book should . . . be required reading among those of us in education and ed policy”, Joe Colangelo, Executive Director of Consumers’ Research, covers this issues very closely in his Forbes article “What A Best-Selling Memoir Tells Us About Payday Loans”.

He particularly highlights the fact that the books is exemplary as it most vividly shows how the regulatory bodies that make laws actually have very little or no idea about what is best to be done.

One of such cases concerns Ohio’s Sub. H.B. 545, which J. D. Vance covers in his story. The law capped payday loan amount at $500, interest rates at 25% and extended a minimal loan duration up to a month. It was supported by the majority and opposed only by one vote – the one of the Senator Schuler. In accordance to Vance, all these measures do look chivalrous and to the benefit of the low-income families and individuals, whom law-makers seem to be so ardent to help and defend from so-called “predatory” credit practices; however, these attempts have very little with the understanding of the reality of the people they are meant for.

One of the quotes from the books illustrates the idea: “On that day, a three-day payday loan, with a few dollars of interest, enabled me to avoid a significant overdraft fee. The legislators debating the merits of payday lending didn’t mention situations like that. The lesson? Powerful people sometimes do things to help people like me without really understanding people like me.”


The course of the debate around payday loans is hard to predict in the light of the following elections despite the tendency that has developed. At the present moment more and more states choose to follow the steps of the states that have already either completely banned or severely restricted the liberties of payday loan industry. This course is mostly defined by the people who stand behind the aforementioned regulations, who claim to serve for the good of the state, yet, who also represent the elite that have never actually encountered any of the problems low-income families have to face daily. And, in retrospect, perhaps, this book might be pretty useful for them in the first place as it is capable of providing another angle for looking at social-economical situation in the country in general and payday loan issue in particular.

As Joe Colangelo states “how well-intended regulations can have unintended consequences that hurt the very people they are meant to assist.” He also suggest the book as a very good and instructive read for all the legislative representatives in general (the Consumer Financial Protection Bureau including) – as well as every opponent of payday loan industry in general.


The book has got a number of praising quotes from all the reputable magazines and papers including some of the following:

“[Hillbilly Elegy] couldn’t have been better timed…a harrowing portrait of much that has gone wrong in America over the past two generations…an honest look at the dysfunction that afflicts too many working-class Americans.”National Review

“The troubles of the working poor are well known to policymakers, but Vance offers an insider’s view of the problem.”Christianity Today

“[A] compassionate, discerning sociological analysis…Combining thoughtful inquiry with firsthand experience, Mr. Vance has inadvertently provided a civilized reference guide for an uncivilized election, and he’s done so in a vocabulary intelligible to both Democrats and Republicans. Imagine that.”New York Times


The story is available in all bookstores and can be purchased online.

What News from Ohio?

 
Ohio is known for its leniency to payday loan industry; thus, there is no surprise that Canton has got a fair number of payday loan places.

The same is true here as in entire Ohio – there are much more such stores here than in any neighboring states; the city itself is pretty notorious among those who deal closely with finances.

As a matter of fact, all the stores that are located around the central shopping mall are quite in demand among the locals. In fact, there is a great number of people who come here on a regular basis – almost monthly, or bimonthly – to get some cash till next paycheck.

It might look strange, especially from the point of view of the Consumer Financial Protection Bureau, and similar institutions and individuals advocating for complete ban of the industry.

However, for the regulars of these stores the situation is seen from a slightly different angle. Most of these people are low-income individuals who for various reasons have either no or very limited access to more traditional credit products; most of them are unable to apply for a bank loan, credit card or the like. Many of them have neither credit record that is sufficient for such application nor any other ground to very likely face a refusal. Yet, most of them are in need of small cash infusion to get going till the next paycheck. Here is where the stores around the mall come into play.

In the light of recent changes in regulations and new steps that the Bureau have already and is going yet to take it is all these people who are likely to suffer most. This is a question that most payday loan industry opponents are unable to answer – where is the alternative to this particular small cash loan product? As a matter of fact, there is none at the moment.

All those borrowers in Ohio as well as other states with the same situation are likely to appear in a much worse conditions than they are now. It can be easily predicted with the help of Georgian example. Georgia passed the regulation in 2004 that actually made most short-term, high-interest loans illegal. This basically resulted in a growing number of bounced-check overdraft fees as well as a great number of cases of filings for bankruptcy – all due to the fact that people have never been offered any sound alternative.

Now in Ohio, where the rates of interest are the highest and the number of payday loan stores are as great as McDonald’s, the story is likely to be repeated. It is true that 14 states banned payday lending for good and that this idea is looked upon with approval by the leaders of many more.

At the present moment, however, one distinct alternation is likely to come into effect. As it is well-known that payday lenders have their own ways to check creditworthiness of a client; and that they carry very formal credit checks, if any. In accordance with the new regulations payday loan companies will have to deal with these things more seriously.

The consumer bureau’s guidelines will require that payday lenders require more inquiry than just a pay stub and ID. The regulations will require that lenders should verify a borrower’s income as well as debts, were able to evaluate expenses and make sure that all payments will be handled by a borrower. Otherwise a borrower is likely to be refused. Payday lenders will still be able to lend small cash short-term loans up to $500; however, the number of borrowers is likely to reduce as those who has debts or other problems won’t get one.

This all looks very much traditional lending, for sure. This is the reason why many people in Ohio are not exactly happy about the changes – and they are not just from the lenders’ side. Surely, the former complain about the loss of profit; consumer advocates claim that loopholes will always be found and only borrowers find themselves in dismay, yet again, as they are low-income consumers and they are definitely the ones who will feel the effects first and worst.

In accordance with the study of the Journal of Law and Economics, disappearance, or ban of such small credit products does not result in the disappearance of he demand for them. It basically only pushes most low-income individuals to go and engage into even less effective and beneficial financial schemes and accumulate worse financial problems instead. Thus, unless some alternative is offered to borrowers from low-income sector, payday loan ban and further industry restrictions will stay only halve effective.

Google Ads Payday Loan Ban Debates

 

The news about Google banning payday loan advertising from their their Google AdWords came as a big surprise earlier this summer. It was unusual as Google have only banned illegal or openly abusive products and services before; but never services that are actually legal in the majority of states.

Despite the fact that small cash credits known as payday loans are treated differently and there are a great deal of controversy about the entire industry, let alone the fact that the states have different (sometimes opposite) regulations with regards to it, Google came to the decision to ban such types of advertising, which resulted in disabling of about a billion ads.

As it was said, such Google’s policy is not new; but this is basically the first time when the company put their foot into the discourse around “good and evil” and, as it appears, the debates around payday loan industry, quite heated before, have become even more so lately.

For Google such a decision was justified by the idea that the entire payday loan industry is “harmful”. They are definitely backed-up and applauded by many opponents of the short-term loan concept; there are plenty of critics who finds the industry vile and only capable of making profit from the needs of low-income individuals.
However, there seems to be a great number of people who find such a step unjustified. Among them there is a number of Gadfly bloggers who find Google’s action a mere attempt to judge some actually legal business sector that they simply find inappropriate.

As any other questions about morality and profit, this debate is not a simple one. The opinions on payday loan industry have never been unanimous, now they have become even more diverse. The financial sector in question has its huge flaws (as any other, to be just), and it might pretty fairly be accused of imposing impossible interest rates on borrowers as well as lenders having huge consequential profits; however, it is just about the only credit option for a considerable group of low-income individuals with no access to credit market. And this fact should be taken into consideration.

The bloggers’ debate, however, was mostly about the line that separates censorship and capitalism practiced online. It is clear, that it hasn’t reached any consensus and, probably, never will. However, such debates are pretty symptomatic in the sense that they reveal another problem of the sort: precisely they raise the topic of actual power behind such huge and influential services as Google and Facebook (the latter banned payday loan ads a year ago). Because, these two are the most influential in terms of information exposure – and are able to choose what to show to users and what not.

Despite the fact that tv ad bans took place as early as in 1971 (cigarettes), there is a distinctive difference now. Such decisions were taken on a governmental level – or at the very least not at the level of any particular technological company, that claims to take action now at those sectors where government has no time (or will, or else) to act.
Google’s policy on this account is exactly the one – they claim that the aforementioned step serves to protect borrowers from using doubtful financial products. And despite the fact that the motives behind the action still seem a bit covert to the critical minds in public sphere, one thing is for sure – any company, Google or some other on its place, has a right to choose which ads to run, and which one not to.

Whether such decision will affect numerous payday loan business across the state, is likely, but not necessarily that much as the supporters of the industry expect to.

Payday Loans – for Better or for Worse?

payday1

 

Payday loans have become a much discussed topic these days – the opponents of the entire idea cry that this type of lending one of the most dangerous and unfair ones with regards to a borrower (taking into consideration high interest rates and the terms of lending); while the proponents – lenders, obviously, try to highlight the advantages and numerous benefits of their product.

Taking into consideration the nature of the new regulations proposed by the Consumer Financial Protection Bureau (they came into effect this summer), it is clear that the authorities see payday loans more as a threat to low-income households than some means of support. However, are payday loans as bad an option?

The thing is that there is no one simple answer to such the question. On the one hand, payday loans do certain harm such as increase in personal debt amount, bankruptcy fillings, applications for government donations and all sorts of various financial problems.

However, there are also numerous researches that proved the use and undeniable positive effect of having access to such small credit option in such situations as financial crisis and aftereffects of some natural cataclysm and etc.

One can suppose that payday loans as a phenomenon are both relatively good and bad – with regards to every given situation. For low-income families, access to such credit solution at times of financial pitfalls is definitely an advantage and a very feasible way to bridge the gap between paychecks, stay afloat. However, such loans can also easily lead to a major financial complication if an option becomes a habit while everything is relatively stable in a person’s cash department.
 

One of the researches that showed the aforementioned effects was highlighted in the Federal Reserve Board’s paper on the subject (full text here). It outlines two groups of different households – the one with very low income and the other with a better financial situation – both in the stat with pretty lenient payday loan policy.
 
As it appeared, in case of the households that had very low income payday loans served pretty much in a way they are supposed to (and are described by those who offer them). The paper also proved the positive effect of such small credits in cases when financial complications are further aggravated by some extreme, say, weather conditions – whose families that had access to payday loans managed to cope with money problems better (compared to those households that had no access to such financial product).
 
It basically seems that payday loans – when used directly as they are supposed to, in cases of emergency, singularly and when the need is real – are able to provide some sort of financial cushion to low-income households.
 
However, the same research showed that when there is no emergency (no weather whims to deal with, for instance), there is a tendency for the members of low-income households to develop a habit of taking easy cash; which definitely leads to indebtedness and all the problems payday loans are notorious for and accused of.