Payday Loans. Cheques Cashed, Landsdowne

Image by PinkMoose via Flickr

State Sen. Ron Calderon, D-Montebello has been getting a lot of flack because of his pro payday loan viewpoint and commentary in The Sacramento Bee in November.

His stance is that many happy customers of payday lenders could be hurt by the do-gooders should the industry be subject to a much stricter regulation or even banned.

The industry has a bad rap.  Accusations abound of draining money from low-income communities, exploiting hardship for profit, aggressive collection practices, and lenders ignoring legal restrictions.  Yes, Payday lending is controversial and it does face many legal issues and the challenge of public perception.  Of course there are some bad apples out there as there is everywhere, and the few bad ones spoil the reputation for all.

Not only low-income individuals with little to no assets resort to payday lending, but many normal-income people who face some unexpected expenses also.  After all, we can’t predict what emergencies we could be dealing with from one moment to the next.  State Sen. Calderon also points out that those borrowing most frequently have an annual income on average of $55,000 and according to industry data, teachers and nurses are those using payday lending services the most.

Payday loans have an easy application process as compared to the traditional loans; the requirements for being eligible are also a breeze.  Response time is much quicker than with any bank, and they specialize in short-term funding.
Those who apply for a short-term loan are often stressed with perhaps an unpaid loan or have some unsettled bills, which makes them not able to qualify for a bank loan.  Payday lenders are their only answer; without them they would be forced to look to some illegal source of money.

“…those borrowing most frequently have an annual income on average of $55,000…”

State Sen. Ron Calderon isn’t the only one who speaks positively for the industry.  Tom Lehman is an advocate for payday lending as well.  In addition, a report by the Federal Reserve Bank of New York once stated that payday loans may improve household welfare and should not be seen as “predatory”.  Prof. Adair Morse from the University of Chicago Booth School of Business found in his 2009 study that in areas struck by a natural disaster, consumers where much quicker on their feet wherever payday loans were available compared to those were payday lending was not present.  It is also interesting, that the same study concluded that areas offering payday lenders had fewer individuals being treated for addictions.

People applying for payday loans are aware and are capable of making their own financial decisions without being subjected to intervention.

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