When we started LoanShop We had bunch of ideas on where to start but nothing concrete. Our idea was to help people. Help people to make right decisions in handling their finances when they are struck with a short term cash emergency. We were wondering if the information out there was not sufficient enough to call for another company or organization to put up a board. Then we realized how skewed the data, the information is on either side of the aisle.
After looking through the data, we realized that there are two sides to the spectrum. On one side there are Lenders (Registered and Responsible while completely working under both Federal and State Regulations) willing to offer safer, quicker and reliable service to the customers who were turned down by majority of the banks and credit unions as not credit worthy. And on the other side, there are Consumer Advocacy Groups. This includes both for profit and non-profit organizations ranging from the smallest Church Voluntary groups to the largest corporates actively lobbying the Washington corridors. Majority of these groups actively works with the Regulatory agencies in trying to bring non-compliant lenders to justice while also providing relief to customers under certain circumstances. The Consumer Advocacy Groups also works with both State and Federal Governments at different levels and tries to be part of the law making process.
While having two sides to the cause is always good, it comes with its own challenges. To start with each side substantiates their side of the story only by explaining how they are right.So, Lenders on one side explains about the quality of service being provided to the customers and how consistently it is being provided. They point out to the data revealed through a Freedom of Information Act request filed by the representative of the Community Financial Services Association of America (CFSA) – the trade association that represents the short term lending industry in December 31, 2015. During the five-year period covered by the FOIA request, 12,308 comments of the 12,546 comments submitted on short term loans praised the industry and its products and services, or otherwise indicated positive experiences.
The FOIA documents also revealed only an extremely small number of critical short term lending comments were submitted to the CFPB – just 240 or less than 2%. What’s more, the vast majority of these critical comments were either mistakenly categorized as Short Term industry related or they relate to scams and unregulated lenders that the CFPB’s proposed rule fails to address.
BY THE NUMBERS:
- Of the 12,546 comments submitted to the CFPB’s “Tell Your Story” portal, 12,308 comments – or more than 98% — praised the industry and its products and services.
- Fewer than 240 customer comments – less than 2% — were negative.
- Of the 240 negative comments, 84 comments were mistakenly categorized as Short Term industry related. They did not reference the short term lending industry, but rather bank complaints, insurance complaints, and student loan complaints, to name a few examples.
- Of the 240 negative comments, 74 comments related to short term lending scams and/or unregulated lenders.
This data is consistent with complaint data from the CFPB and FTC, as well as surveys of short term loan customers. Since the CFPB’s complaint portal came online in 2011, complaints regarding short term loans have been miniscule – just 1.5% of all complaints. Meanwhile, these complaints continue to decline. The CFPB data mirrors consumer complaints to the Federal Trade Commission. In its summary of 2015 consumer complaints, the FTC found that just 0.003% of more than three million complaints related to short term lending. In both the CFPB data and FTC data, mortgages, credit cards and many other financial services had exponentially higher numbers of consumer complaints. You can read the full article from CFSA website regarding these numbers here.
Also many short term lenders indicate that the current high level of cost structure is necessary to provide quality service while making up for the number of customers who default on their loan obligations. And without such cost structure and increased regulation over an already excess regulated industrywill force many lenders to drop short term lending, and send borrowers to loan sharks or other unregulated lending sources, they warned.
On the other hand, the Consumer Advocacy Groups call for more stringent laws and regulations on the short term loan industry. They point out that Twelve million Americans take out short term loans each year, spending $9 billion on loan fees. Although these products offer quick cash, the unaffordable payments lead consumers to quickly take another loan to cover expenses leading to a spiraling loan debt burdening the consumers more than they can pay for.
One of the leading Consumer Advocacy Groups, PEW Charitable Trusts, has published their findings on the high-cost small-dollar loan market based on their research over the past five years.
The average short term loan borrower is in debt for five months of the year, spending an average of $520 in fees to repeatedly borrow $375. The average fee at a storefront loan business is $55 per two weeks.
A borrower must have a checking account and income to get a short term loan. Average borrowers earn about $30,000 per year, and 58 percent have trouble meeting their monthly expenses.
Auto title loans are similar to short term loans, except that the average loan is $1,000 and is secured by a borrower’s car title. Roughly 2.5 million Americans spend $3 billion on auto title loan fees each year.
- The average short term loan requires a lump-sum repayment of $430 on the next payday, consuming 36 percent of an average borrower’s gross paycheck. However, research shows that most borrowers can afford no more than 5 percent while still covering basic expenses.
- Short Term loans are usually due in two weeks and are tied to the borrower’s pay cycle. Short Term lenders have direct access to a borrower’s checking account on payday, electronically or with a postdated check. This ensures that the lender can collect from the borrower’s income before other lenders or bills are paid.
- Although short term loans are advertised as being helpful for unexpected or emergency expenses, 7 in 10 borrowers use them for regular, recurring expenses such as rent and utilities.
- Short term loans are available in 36 states, with annual percentage rates averaging 391 percent. The other states effectively prohibit these loans by capping rates at a low level or enforcing other laws.
- As a result, most borrowers renew or reborrow the loans. This explains why the CFPB found that 80 percent of short term loans are taken out within two weeks of repayment of a previous loan.
- The payday loan market is not price competitive. Most lenders charge the maximum rate allowed under state law. States without rate limits have the highest prices.
You can read the complete article here.
After reading through these observations from both sides of the spectrum, we realized that both sides are not presenting the complete picture. While it is extremely important to not to come to any conclusions before considering all the facts, it is also equally important to take action in a timely fashion. Pay close attention to the last observation pointed out by the PEW Charitable Trusts. The rest of the story, we are about to share hinges on these most important principals of free market and yet blatantly missing in the current short term industry.
Reeling back to the topic About Us… This time truly it is…
At LoanShop we are different. We believe in people. People like you Ordinary, fighting hard when life is trying to throw you around, trying your best to stay positive, looking optimistic about the future, helping others when called to and serving community in whatever way you can. We also believe in Choices. And the idea that People when given options, with enough information, will always make Right decisions. Decisions that are relevant and good for them in the situations they are in. This is our code at LoanShop. This attitude is what drives us to innovate and build better products.
So we looked hard at the short term industry from our perspective and realized that there is a missing puzzle. There is no platform for consumers to come out and seek loans while Lenders compete for their business. A most important free market principal has no takers. Due to the absence of which, some Lenders are able to charge customers with fees over and above the reasonable amounts attracting the wrath of many scholars from diverse industries including law professors, consumer advocates, members of the clergy, journalists, policymakers, and even the President!
Through LoanShop we are trying to bring this missing puzzle to the table. We are working hard to bring as many lenders to the LoanShop Market as possible while carefully vetting out all the lenders who are willing to be part of our initiative. On the other hand, we are offering this service exclusively to our members at no cost to them…. Yes… You heard right absolutely at $0 cost.
What more??? The Membership is also absolutely free. We DO NOT charge you for membership. The application process only take about 15 minutes and then another 5 minutes for applying and viewing all the lenders who are willing to provide that short term emergency loans…
So why wait… Start Shopping Today !!!