The Good, the Bad, and the Ugly

Alternative Financial Services should hire Clint Eastwood as a spokesman.  Talk about the good, the bad and the ugly.  Because the banking sector will not issue loans to high risk applicants, room in the market has been made for alternative financial services.  It makes sense to offer short-term, high(er) interest rate loans to those who may not be able to pay off larger long-term loans due to the demand.  When dealing with predatory lending, the good can be hard to find, but it is important to note that the market has made way for these services. 

Where’s the bad?  The interest rates are incredibly high on many of these loans.  Even though payday loans are regulated at 36% APR, adding all the additional fees to the interest rate payments results in loan payments rivaling those of a 300% APR loan.  Also, supply and demand take on a different form with certain alternative financial services.  They perpetuate their own demand.  Not unlike a drug dealer, a payday lender sells a product knowing the client will come back for more.  If the borrower needs the money now, he or she will surely need money later to pay off the loan. 

Was that the ugly?  Almost.  Not only do these companies back borrowers even further against the ropes, but they are not honest in doing so.  The real ugliness is the deceit.  Lies of omission, rushing through the paper work, and intentionally clouding over the details are tactics used by payday and car title lenders to ensure the issuing of a high interest, fee-riddled loan to a borrower that has the potential to keep making this industry money.  To see the real effect of lies and poor communication, read Tasha Kate’s article in The Daily Progress about a recent law suit against Allied Cash Advance for violating the Truth in Lending Act.

Consumers are both responsible for themselves and in need of protection from predatory practices.  Consumers should be allowed to make their own financial decisions, but the paper work and employees that they deal with should be held to standards of clarity.  Contracts should be easy to navigate, short, and the all fees should be explicitly stated in one spot.  Lenders should be held to a code of ethics, and communications within a company should be better as to avoid wrongful foreclosure or repossession.