Let the Market Work
Friday, August 29th, 2008 By Marc KilmerThere is an interesting feature in The Other Paper out of Columbus pondering the future of the payday lending industry. It notes that credit unions may rise to fill the void if payday lenders are indeed shut down:
Stretch pay is the credit union’s payday loan alternative, according to Jeff Carpenter, vice president of membership and development at Wright-Patterson Credit Union. It was developed two years ago in Ohio and has spread to five other states: Michigan, Wisconsin, Maryland, Colorado and North Carolina. There are currently 28 locations that offer stretch-pay loans in Central Ohio.
“We tend to have a better deal,” he said. “In terms of specifics, with our product, you’re looking at one annual fee; with their product it’s $15 to $20 every time you borrow. We also have an 18 percent APR, which, on $500, is about $7.40.”
If these loans are such a good deal why do we need a law that effectively bans payday lending? Payday lenders can offer their products and credit unions can offer their products. If those who attack payday lending are right that borrowers are being exploited and robbed by payday lenders then it stands to reason that the credit unions would take over the market, wouldn’t it? Why would people continue to borrow from the evil payday lenders if they can get such a good deal from credit unions? The answer is that people are being offered a service by payday lenders that they actually prefer over their other alternatives, including credit unions. People freely choose payday loans in the face of these other alternatives. If people borrow from payday lenders when they have a lower-priced loan available, how are they being exploited?
There have been questions raised about the extent of the credit union industry’s support for a ban on payday lenders. It seems credit unions may want to use the government to shut down an industry with which they have a hard time competing in a free market.
Tags: Economic Freedom
September 3rd, 2008 at 8:10 pm
First – Stretch pay isn’t really that much cheaper. If one adds the initial fees to the interest rate, as payday loans do, the APRs are close.
Secondly, the closest credit union to me (Wright-Pat) that offers Stretch pay is well over an hour’s drive from my home. Plus once I get there I would only be kicked out because I don’t meet the membership requirements.
Third – There are many other factors that contribute to the VALUE of the payday loan product.
- People want convenience (location, hours…) and will pay for it.
- People go where they are treated with respect.
- Some people don’t want to be entered into a state database.
- Some don’t want mandatory financial counseling.
- Some may have more than four emergencies per year (the limit under HB 545).
- Many have already been treated poorly by credit unions and banks and want to minimize their contact with these institutions.
- The flat 15% charged for a payday loan is simple and easy to understand. I doubt that many credit unions post their loan price on the wall as payday loan stores do.
In short, there are many factors that contribute to the VALUE that the customer receives. Credit Unions have a hard time competing with this. Is it any wonder that anti-payday funding comes from a credit union?
Vote NO no Issue 5. Let the consumer make the decision of which product they prefer.