If banks want to grow in the future, they will have to adapt their business models to serve the credit-challenged population.
Los Angeles, CA (Vocus) July 23, 2010
According to a payday loan resource, AboutPaydayLoan.com, many payday lenders are concerned over the forthcoming consequences brought upon by the financial bill that was passed by the Senate and signed by the President yesterday. Their concerns regard new regulations on the payday loan industry by the federal government. Many payday loan lenders, such as Payday Loan Trust, believe these regulations are too restrictive and hand too much power to the respective payday loan State. These new regulations will be counterproductive to payday loan business operations, as it will hurt their business and may result in downsizing. In the long run, a new wave of layoffs and shutdown businesses from the payday loan sector will go on to hurt the struggling economy even more.
A recent payday loan article from The Huffington Post claims that the new financial bill will put an end to payday lending because it enables banks to compete against payday lenders for short term high interest loans. According to the article, "If banks want to grow in the future, they will have to adapt their business models to serve the credit-challenged population." In the same article they go onto say that 1/3 of the US population is at high credit risks, lending out money to high risk borrowers will only put banks at more risk.
The fact of the matter is, big banks will never be able to compete with short term lenders so long as they are attached to Wall Street. A payday loan of $100 could cost banks a lot more than a payday lender simply because of banks operating costs. Take into consideration bank business costs and overhead, their employees, and their executives salaries and bonuses, a banks will not be able to be profitable on short term loans.
The new financial overhaul is here to put caps and limits on all types of short term loans, including payday and title loans, and to curb predatory lending. It is simply wrong and naive analysis to think that this bill was going to shift the short term lending industry from payday loan lenders to bigger lending institutions like banks.
In addition, studies show that many Americans have lost faith in our banking system because they see it as a direct correlation to the downfall of the US economy. They will continue to fear hidden fees tacked on by banks even if the new bill forces them to "advertise their fee structures as clearly as a McDonald's menu.” Americans are smart people and they know it was big banks and Wall Street that failed America back in 2008, not payday loan lenders.