By Gaurav Bhola, MSM, Managing Editor
Thursday, August 23, 2007
The tide seems to turning for the payday loan industry, an increasing number of banks and credit unions are starting to offer cash advance loans. Recently, Synovus, a Florida bank started offering short term loans to businesses. The bank provides payday loans to businesses with less than twenty-five million dollars in assets. The bank states that it wants to help businesses increase their cash flow. However, Synovus’s true motives for getting into the payday loan industry after outcries by consumer groups and lawmakers about the unethical industry behavior seems unclear. In most likelihood banks and credit unions are starting to enter into the payday arena because it is a very lucrative industry.
Business payday lending opens up new avenues for the payday loan industry. In addition to consumer lending, the business community is perhaps the most in need of cash flow on a regular basis. A business cash advance works differently than payday loans offered to consumers. A consumer payday loan borrower is expected to pay the personal loan by the next payday through a checking, savings, or debit account, if not, high interest and fees can accrue.
While, business payday loans are not paid back from a saving, checking, or debit account; the payday loan industry has come up with new solutions to help facilitate loan repayment methods specifically for businesses. Businesses can pay back the short-term loan incrementally via credit or debit card payments; just like paying your credit card bill at a fixed percentage interest rate.
But business owners must remember that any payday loan, cash advance, short term loan, payday advance loan, faxless cash advance, cash advance loan, or no fax payday loan must only be sought in extreme cash flow crunches due to the accompanying high interest rates, penalties, and fees.
Due to the high interest rates and fees, the once unregulated payday industry is now facing strict regulations in terms of providing full disclosure to borrowers, and limits on interest rates, fees, and penalties that can be charged. The closer scrutiny by consumer action groups and by legislators has forced Community Financial Services Association of America (CFSA), the payday industry’s advocacy arm to formulate strict guidelines for their payday lender members.
Some of the guidelines payday loan lender members must follow:
- Limit or stop payday loans rollovers
- Full disclosure of all loan terms
- Full disclosure must also include all fees in percentage or dollar amounts
- Stop any misleading or false advertising
- Prohibition on legal prosecution threats to borrowers in default
- Allow borrowers 24 hours to rescind their cash advance payday loan
Also CFSA, in a further instance of industry self-governance, has taken the initiative to perform a national advertising campaign aimed at educating consumers about payday loans and attempting to show the payday industry in a positive light. Irrespective of whether there are stricter regulations, the onus is upon the business and consumer to fully educate themselves before soliciting payday loans.
