- - Thursday, August 27, 2015

Some want to do away with them, calling them predatory. Some consider them just another loan product available in the financial market. I consider them a right, a right afforded to participants of a free capitalistic society.

According to CheckIntoCash.com, payday loans are designed to be a less stringent alternative to bridge cash flow issues due to unexpected expenses or holiday expenses such as Christmas. Most payday loan providers do require applicants to be 21 years of age, have a steady income and a bank account for a minimum of 90 days. Payday loans do not require a credit check and in many cases do not require borrowers to use their Social Security numbers. So why do so many oppose the option of using a payday loan?

The people who oppose payday lending do so under the guise of predatory lending, often citing the fact that interests rates can be more than 300 percent. According to the Consumer Financial Protection Bureau’s report released March of 2014, 58% of payday loan customers are also receiving government assistance — a fact which seemingly substantiates the argument that payday loans are compounding these individuals’ financial hardships.

As a former banker both pre- and post-housing market meltdown, I have firsthand experience of how much more difficult it has become to be approved for lending. Approvals are not only difficult for the borderline applicants, but also difficult for those with decent cash flow and FICO scores. The increased scrutiny of applicants by the underwriters working for traditional lenders, like banks, essentially locks a large segment of people out, thereby precluding them from obtaining traditional financial assistance.

The concept of supply and demand is one of the most fundamental principles of the free market underpinning the U.S. economy. When there is a void in the market, the free market allows room for businesses to supply the demand. According to the Federal Reserve Board, since the late 90’s, use of payday lenders has risen five-fold to the tune of $50 billion. When banks lock the consumers out, the market will address the need if the demand is high enough. The staggering numbers prove the demand is there and the demand was supplied with payday loan services.

As an entrepreneur for more than a decade, I know the stress and anxiety cash flow problems can create. Payday loans are a choice that many consumers use responsibly. In my early entrepreneurial years the options to address immediate cash flow concerns were limited. With 58% of payday loan users receiving government assistance, one may conclude that a majority of those people do not have many options during times of financial adversity. The use of payday loans is merely an option, and individuals can not have choice without options. Vilifying the lenders is unrealistic. Borrowers have the choice to accept the terms of the loan or to find another solution. Are the interest rates outrageous? Yes, but the terms are known before the receipt of funds. The issue is not the lenders, but the government which strangled the big and community banks alike with a mountain of regulations. The same government has failed to give attention to our education system, which is in critical condition, leading to multiple generations of under-educated communities unable to gain employment or position themselves to have more financial options and make better personal financial evaluations.

If we want to stop predatory lending we have to stop producing communities which are not savvy enough to know when they are preyed upon.

K. Marques Mullings is the executive vice president of Howard Stirk Holdings, and his background includes extensive experience in entertainment and banking.

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