The central bank is set to roll out 300 billion baht in soft loans as financial assistance for SMEs and individual business operators hit by the recent flooding in early March.
Commercial banks will be slapped with a higher interest rate if their loan issuances are not in compliance with the regulations.
The Bank of Thailand is set to issue 300 billion baht in soft loans to provide financial assistance for victims of the recent floods in accordance with an executive loan decree. The period of the loan program is five years.
Of the total amount, 210 billion baht is being funded by the central bank, while the rest will come from financial institutions’ contributions.
Bank of Thailand Assistant Governor for the Financial Markets Operations Group, Pongpen Ruengvirayudh expects the list of provinces designated as flood disaster zones to be announced by the Finance Ministry today. Financial institutions have been advised to notify the central bank of the loan amount they will require within two weeks of the announcement.
She said the funds will be transferred to the banks within three days of the central bank’s receiving of their requests and that they can begin offering the loans to individual clients in early March.
Eligible borrowers must be SME companies or individual business operators that were affected by the recent flooding. An SME borrower will be entitled to a maximum 30 million baht loan, while loans for individuals are limited to one million baht.
The Bank of Thailand will charge an annual interest rate of 0.01 percent from financial institutions, while the financial institutions are allowed to charge borrowers an interest rate of no more than three percent.
Commercial banks will be liable to paying an interest rate of ten percent as a penalty should they be found to be issuing loans that are not in compliance with the central bank’s regulations. They will also be solely responsible for any risks or liabilities involved in issuing such loans.
http://tourism9.cm/ http://vkins.com/
2012年2月7日星期二
Capital Access Network Raises $30M From Accel To Loan Small Businesses Working Capital
In this economic climate, many small businesses do not qualify for loans based on the standards imposed by banks and financial institutions. For fledgling businesses, the establishment doesn’t have enough cash flow, revenue or credit to qualify for a loan. Many times, entrepreneurs have to put up personal assets as collateral for loans, which can be problematic and risky. The fact is working capital is difficult to get from banks unless a business has perfect credit.
Capital Access Network (CAN), a company that gives small businesses access to credit and working capital and helps solve the problem outlines above, is announcing this morning that it has raised $30 million from Accel Partners. As part of the transaction, Accel partner, Kevin Efrusy will join Credit Access’s board of directors, and Accel vice president, John Locke, will join as an observer.
CAN constitutes the largest, non-bank alternative capital provider to small businesses in the US. The company uses its own real-time platform and risk scoring models to provide capital to small and medium-sized businesses in the US and Latin America and has funded over $2 billion in capital to SMB’s under the brands NewLogic Business Loans and AdvanceMe. This represents roughly 100,000 distinct small business finance transactions. This year alone, CAN will fund over $600 million in loans to small businesses.
CAN uses a variety of data points to deem a business worthy of credit or capital apart from the traditional criteria. CAN’s proprietary underwriting algorithms will churn through its vast data stacks of historical merchant demographic, firmographic, psychographic and social and behavioral profiles seeking and seasoning new behavioral and synthetic risk indicators and recombining those indicators into new risk scorecards.
For example, CAN will look at frequency of sales (not just how much), inventory access, eBay seller rating, tax returns and other information. In terms of interest, the company uses a more unorthodox, merchant-friendly way of collecting money on top of a loan. If an online violin store needs $30,000 in working capital to purchase inventory, CAN will loan the money, but the borrower will need to pay back $35,000 to CAN over 12 months.
Typically, CAN will give merchants and businesses anywhere from $2,500 to $250,000 in working capital. Customers range from medical practices, to shoe stores to auto repair shops to clothing, accessory and home product online retailers.
CAN CEO, Glenn Goldman, tells me that the extra amount the borrower has to pay to CAN depends on risk of the loan, how long it will take for the loan to be paid back, the amount of capital lent and other factors. But he says many times, the amount CAN charges is less than any interest rate from a bank. And 75 percent of customers renew their funding. In some cases, repayment can be fairly simple. Goldman points to the example of one online merchant who chose to automatically forward a small percentage of sales from its payment processor directly to CAN to repay the loan every month. If sales were lower than usual that month, CAN would lower the amount needed to pay.
And Goldman explains that behavioral risk scoring, rather than just examining a small business owner’s FICO score, allows the company to ‘yes’ to a higher percentage of SMBs than traditional sources while mitigating losses.
For Accel, the investment marks the continuation of a thesis of investing aggressively behind companies that are enabling small businesses to grow faster, says Efrusy. He cites investments in Groupon, Etsy, 99 Designs, Braintee, DropBox as just a few of the Accel-backed companies that are helping are “giving small businesses tools to thrive.”
“From our work with small businesses, it’s clear that one of the most pressing issues for merchants is access to credit and working capital,” Efrusy said. “Especially today, banks are unable to play effectively in this market. Large institutions cannot reach, evaluate, or serve small businesses efficiently. Many newcomers to the finance space are constrained by limited access to and very high-cost capital combined with high portfolio losses given unseasoned risk scoring models. Capital Access Network has by far the strongest team, scale, and data-driven approach to this market.”
Goldman says the new funding will be partly used for boosting and redesigning the online merchant experience on CAN. By April, the lender will feature new user interfaces, merchant portals and online approvals.
As Efrusy explains, there’s a huge amount of disruption taking place in the online lending space, and CAN is in a great position to help small businesses grow with working capital. Kabbage is another startup that is also looking to provide capital to online merchants, and ZestCash is doing something similar on the consumer end of the spectrum.http://tourism9.com/ http://vkins.com/
Capital Access Network (CAN), a company that gives small businesses access to credit and working capital and helps solve the problem outlines above, is announcing this morning that it has raised $30 million from Accel Partners. As part of the transaction, Accel partner, Kevin Efrusy will join Credit Access’s board of directors, and Accel vice president, John Locke, will join as an observer.
CAN constitutes the largest, non-bank alternative capital provider to small businesses in the US. The company uses its own real-time platform and risk scoring models to provide capital to small and medium-sized businesses in the US and Latin America and has funded over $2 billion in capital to SMB’s under the brands NewLogic Business Loans and AdvanceMe. This represents roughly 100,000 distinct small business finance transactions. This year alone, CAN will fund over $600 million in loans to small businesses.
CAN uses a variety of data points to deem a business worthy of credit or capital apart from the traditional criteria. CAN’s proprietary underwriting algorithms will churn through its vast data stacks of historical merchant demographic, firmographic, psychographic and social and behavioral profiles seeking and seasoning new behavioral and synthetic risk indicators and recombining those indicators into new risk scorecards.
For example, CAN will look at frequency of sales (not just how much), inventory access, eBay seller rating, tax returns and other information. In terms of interest, the company uses a more unorthodox, merchant-friendly way of collecting money on top of a loan. If an online violin store needs $30,000 in working capital to purchase inventory, CAN will loan the money, but the borrower will need to pay back $35,000 to CAN over 12 months.
Typically, CAN will give merchants and businesses anywhere from $2,500 to $250,000 in working capital. Customers range from medical practices, to shoe stores to auto repair shops to clothing, accessory and home product online retailers.
CAN CEO, Glenn Goldman, tells me that the extra amount the borrower has to pay to CAN depends on risk of the loan, how long it will take for the loan to be paid back, the amount of capital lent and other factors. But he says many times, the amount CAN charges is less than any interest rate from a bank. And 75 percent of customers renew their funding. In some cases, repayment can be fairly simple. Goldman points to the example of one online merchant who chose to automatically forward a small percentage of sales from its payment processor directly to CAN to repay the loan every month. If sales were lower than usual that month, CAN would lower the amount needed to pay.
And Goldman explains that behavioral risk scoring, rather than just examining a small business owner’s FICO score, allows the company to ‘yes’ to a higher percentage of SMBs than traditional sources while mitigating losses.
For Accel, the investment marks the continuation of a thesis of investing aggressively behind companies that are enabling small businesses to grow faster, says Efrusy. He cites investments in Groupon, Etsy, 99 Designs, Braintee, DropBox as just a few of the Accel-backed companies that are helping are “giving small businesses tools to thrive.”
“From our work with small businesses, it’s clear that one of the most pressing issues for merchants is access to credit and working capital,” Efrusy said. “Especially today, banks are unable to play effectively in this market. Large institutions cannot reach, evaluate, or serve small businesses efficiently. Many newcomers to the finance space are constrained by limited access to and very high-cost capital combined with high portfolio losses given unseasoned risk scoring models. Capital Access Network has by far the strongest team, scale, and data-driven approach to this market.”
Goldman says the new funding will be partly used for boosting and redesigning the online merchant experience on CAN. By April, the lender will feature new user interfaces, merchant portals and online approvals.
As Efrusy explains, there’s a huge amount of disruption taking place in the online lending space, and CAN is in a great position to help small businesses grow with working capital. Kabbage is another startup that is also looking to provide capital to online merchants, and ZestCash is doing something similar on the consumer end of the spectrum.http://tourism9.com/ http://vkins.com/
2012年1月23日星期一
Anchorage condo king indicted on fraud, criminal charges
Four years after his financial world began collapsing, Anchorage condo king Lee Baker Jr. has been indicted by a federal grand jury on charges that he lied and cheated on federal credit union loans connected with his construction projects, the U.S. Attorney’s Office announced Friday.
The 14-count indictment accuses Baker, 55, of misleading Denali Alaskan Federal Credit Union in a number of transactions in 2005, including when he sought a loan to purchase and develop Lake View Estates in Wasilla.
Federal prosecutors allege that Baker created a series of land-sales transactions to obtain the loan under false pretenses, transferring Lake View Estates property from his company, Discovery Construction, to himself, then back to the company.
When he “sold” the land back to Discovery Construction, Baker told the credit union that a legitimate deal valued at $1.4 million had taken place, and sought the loan to finance it, prosecutors said. Instead, the indictment alleged, Baker used the money he obtained from the federally insured credit union to reduce his shareholder debt to Discovery Construction.
The indictment also accuses Baker of lying to the credit union when he drew down the proceeds of a $9.2 million construction loan for the Bryn Mawr apartment project on Northern Lights Boulevard in East Anchorage.
Normally, contractors tap into a construction loan as they complete phases of a project and the bills come due. Baker claimed to have completed 12 separate work phases, and each time obtained a chunk of the total loan.
In fact, the prosecutors alleged, “very little work had been done and the total amount completed in each request was false.”
Baker eventually defaulted on the loan, prosecutors said.
Baker also faces a count of money laundering for paying a subcontractor on a different project out of the Bryn Mawr money.
Baker faced a parade of lawsuits from subcontractors and suppliers in early 2008 as the local version of the national housing bubble began to burst and he stopped paying his bills.
Baker was known for building “site condos,” controversial developments where cheap houses were squeezed onto the smallest possible piece of land — in some cases, using access roads the size of alleys in which fire trucks were unable to maneuver.
In March 2008, the Denali credit union followed the contractors and other creditors, suing him and his company to recover $16 million in delinquent loans. The credit union said the delinquent loans were the main reason it lost $2.8 million in 2007.
In its lawsuit, the credit union accused Baker of fraud. Baker acknowledged that he defaulted on the loans, but denied fraud had anything to do with it.
Now it’s federal prosecutors accusing him of fraud and other criminal violations. The U.S. Attorney’s Office in Anchorage said the charges against Baker carry a maximum penalty of 30 years in prison and a $1 million fine, though judges rarely apply the maximum.
Baker couldn’t reached for comment.
In lawsuits and criminal cases filed across the country, the Justice Department has been targeting lenders, contractors, financial managers and others who contributed to the financial collapse associated with the burst U.S. housing bubble in the late 2000s.
http://tourism9.cm/ http://vkins.com/
Federal prosecutors allege that Baker created a series of land-sales transactions to obtain the loan under false pretenses, transferring Lake View Estates property from his company, Discovery Construction, to himself, then back to the company.
When he “sold” the land back to Discovery Construction, Baker told the credit union that a legitimate deal valued at $1.4 million had taken place, and sought the loan to finance it, prosecutors said. Instead, the indictment alleged, Baker used the money he obtained from the federally insured credit union to reduce his shareholder debt to Discovery Construction.
The indictment also accuses Baker of lying to the credit union when he drew down the proceeds of a $9.2 million construction loan for the Bryn Mawr apartment project on Northern Lights Boulevard in East Anchorage.
Normally, contractors tap into a construction loan as they complete phases of a project and the bills come due. Baker claimed to have completed 12 separate work phases, and each time obtained a chunk of the total loan.
In fact, the prosecutors alleged, “very little work had been done and the total amount completed in each request was false.”
Baker eventually defaulted on the loan, prosecutors said.
Baker also faces a count of money laundering for paying a subcontractor on a different project out of the Bryn Mawr money.
Baker faced a parade of lawsuits from subcontractors and suppliers in early 2008 as the local version of the national housing bubble began to burst and he stopped paying his bills.
Baker was known for building “site condos,” controversial developments where cheap houses were squeezed onto the smallest possible piece of land — in some cases, using access roads the size of alleys in which fire trucks were unable to maneuver.
In March 2008, the Denali credit union followed the contractors and other creditors, suing him and his company to recover $16 million in delinquent loans. The credit union said the delinquent loans were the main reason it lost $2.8 million in 2007.
In its lawsuit, the credit union accused Baker of fraud. Baker acknowledged that he defaulted on the loans, but denied fraud had anything to do with it.
Now it’s federal prosecutors accusing him of fraud and other criminal violations. The U.S. Attorney’s Office in Anchorage said the charges against Baker carry a maximum penalty of 30 years in prison and a $1 million fine, though judges rarely apply the maximum.
Baker couldn’t reached for comment.
In lawsuits and criminal cases filed across the country, the Justice Department has been targeting lenders, contractors, financial managers and others who contributed to the financial collapse associated with the burst U.S. housing bubble in the late 2000s.
http://tourism9.cm/ http://vkins.com/
2012年1月19日星期四
CashUSA.net Debuts New Look and Improved Functionality
Redesigned Consumer Site Connects Borrowers with Short-Term Loans
(PRWEB) January 18, 2012
CashUSA.net announces the re-launch of its flagship consumer-lending site, which features an easier online application and streamlined user-interface. For consumers who find themselves in a financial bind, the options today are more limited than ever before. Banks are tougher on loan applicants than they were just a few years ago; so, where can a cash-strapped consumer turn when the car’s clutch goes out or the roof starts to leak?
CashUSA.net provides working people with access to its extensive network of payday-loan providers, who offer short-term loans at higher interest rates in exchange for almost immediate approval and funding. The length of the loan usually only runs until the borrower’s next payday, at which point the loan and all interest and fees must be paid in full. Although not meant as a long-term financial strategy, payday loans are a useful short-term tool to alleviate a financial crisis.
“The new site makes it even easier for working people to get the money they need without having to jump through hoops,” said company spokesperson Todd McMillan. “Our site delivers a service that’s urgently needed in a time of shrinking household income — small loans with quick turnaround times, which fit the needs of today’s consumer.”
No credit check is required for payday loans made through the Cash Advance USA network of lenders. Requirements for a payday loan secured through CashUSA.net are kept to a minimum, making it possible for nearly anyone with a job to qualify:
Once a borrower fills out a loan application through the new CashUSA.net, it is distributed to all the payday loan providers in the network. Because the payday loan providers in the network know they are competing with each other, many offer lower interest rates and fees than commonly found at local retail payday loan centers.
After a borrower chooses a loan, provides an e-signature on the document and returns it to the lender, the loan funds are electronically transferred into the borrower’s checking account. The whole process, from application to transfer of money, usually takes about an hour. This is a speed banks just cannot match.
Payday loan providers in the Cash Advance USA network offer loans ranging from $100 to $1,500. The borrower’s income helps determine how much a payday loan provider will lend to that person. Most payday loan providers will not lend more than the borrower can reasonably pay back on his or her next payday.
The Truth in Lending Act requires that all lenders provide detailed information on the cost of a loan to a potential borrower. This detailed information is referred to as the loan’s terms and includes the loan amount, the interest rate of the loan, the loan fees, and the length of the loan.
###
James McCormick
CashUSA.net
818-779-5874
Email Information
http://tourism9.com/ http://vkins.com/
(PRWEB) January 18, 2012
CashUSA.net announces the re-launch of its flagship consumer-lending site, which features an easier online application and streamlined user-interface. For consumers who find themselves in a financial bind, the options today are more limited than ever before. Banks are tougher on loan applicants than they were just a few years ago; so, where can a cash-strapped consumer turn when the car’s clutch goes out or the roof starts to leak?
CashUSA.net provides working people with access to its extensive network of payday-loan providers, who offer short-term loans at higher interest rates in exchange for almost immediate approval and funding. The length of the loan usually only runs until the borrower’s next payday, at which point the loan and all interest and fees must be paid in full. Although not meant as a long-term financial strategy, payday loans are a useful short-term tool to alleviate a financial crisis.
“The new site makes it even easier for working people to get the money they need without having to jump through hoops,” said company spokesperson Todd McMillan. “Our site delivers a service that’s urgently needed in a time of shrinking household income — small loans with quick turnaround times, which fit the needs of today’s consumer.”
No credit check is required for payday loans made through the Cash Advance USA network of lenders. Requirements for a payday loan secured through CashUSA.net are kept to a minimum, making it possible for nearly anyone with a job to qualify:
Once a borrower fills out a loan application through the new CashUSA.net, it is distributed to all the payday loan providers in the network. Because the payday loan providers in the network know they are competing with each other, many offer lower interest rates and fees than commonly found at local retail payday loan centers.
After a borrower chooses a loan, provides an e-signature on the document and returns it to the lender, the loan funds are electronically transferred into the borrower’s checking account. The whole process, from application to transfer of money, usually takes about an hour. This is a speed banks just cannot match.
Payday loan providers in the Cash Advance USA network offer loans ranging from $100 to $1,500. The borrower’s income helps determine how much a payday loan provider will lend to that person. Most payday loan providers will not lend more than the borrower can reasonably pay back on his or her next payday.
The Truth in Lending Act requires that all lenders provide detailed information on the cost of a loan to a potential borrower. This detailed information is referred to as the loan’s terms and includes the loan amount, the interest rate of the loan, the loan fees, and the length of the loan.
###
James McCormick
CashUSA.net
818-779-5874
Email Information
http://tourism9.com/ http://vkins.com/
2012年1月9日星期一
New state plan pairs loans and utility bills
Homeowners will soon have the option to repay energy-related home improvement loans of up to $25,000 on their monthly utility bills.
Gov. Andrew Cuomo touted the new service last week in his State of the State address as a convenience that is expected to spur interest in state-sponsored energy-efficiency programs.
Customers who borrow to pay for insulation, air sealing, high-efficiency furnaces or other approved items can use so-called “on-bill financing” to pay back the loan as part of their monthly utility bill.
Besides convenience, the new option may offer lower costs when it becomes available Jan. 30.
The fixed interest rate for on-bill financing will be 3 percent, said Dayle Zatlin, speaking for the New York State Energy Research and Development Authority, which operates the revolving loan fund.
That’s 25 percent lower than the 4 percent NYSERDA charges for traditional loans through its Home Performance with Energy Star program, and 14 percent less than the 3.5 percent interest rate for customers who arrange for automatic bill payment.
Because the loan installments are included on the utility bill — and carry the same penalties for nonpayment, including service termination — the on-bill loans are considered less risky, said Zatlin, of NYSERDA.
“We anticipate the financial markets will provide the funds to NYSERDA at a lower interest rate because of the added assurance of repayment,” she said.
Buyers must sign a mortgage to get on-bill financing, which means interest payments may be tax deductible, NYSERDA officials said. They advise borrowers to consult with a tax professional.
The NYSERDA mortgage is subordinate to other home mortgages and cannot be used to foreclose on the property, Zatlin said. But the mortgage ensures that any purchaser of the property is informed of the debt, which will remain on the home’s utility bill if the property changes hands before the balance is paid off, she said.
The loans are typically repaid over five to 15 years, Zatlin said.
State regulators have been working with utilities to implement on-bill financing by next June. Cuomo said Wednesday that he pushed up the schedule to make it available this month. The service will be available to residential customers by Jan. 30, and to business customers within the next few months, Zatlin said.
To qualify for a loan, a homeowner must participate in NYSERDA’s Home Performance with Energy Star program. The first step is to contact a certified contractor, who will assess the home’s energy performance and recommend improvements.
NYSERDA uses a loan servicing company, Energy Finance Solutions, to process the loans. Customers pay EFS a processing fee of $150. NYSERDA also pays EFS $175 per loan.
NYSERDA uses part of the money collected from interest payments to reimburse utilities for their costs to provide billing. Utilities get $100 per loan, plus 1 percent of each loan’s value.
The state will limit the availability of on-bill financing for the time being, until its effectiveness can be assessed, Zatlin said. For the Upstate territory of National Grid, the option will be limited to 6,665 residential customers, she said.
To learn moreMore information about NYSERDA’s residential energy-efficiency programs and links to loan applications are available at nyserda.ny.gov/residential or by calling 877-697-6278.
Contact Tim Knauss at tknauss@syracuse.com or 470-3023.
http://tourism9.com/
Gov. Andrew Cuomo touted the new service last week in his State of the State address as a convenience that is expected to spur interest in state-sponsored energy-efficiency programs.
Customers who borrow to pay for insulation, air sealing, high-efficiency furnaces or other approved items can use so-called “on-bill financing” to pay back the loan as part of their monthly utility bill.
Besides convenience, the new option may offer lower costs when it becomes available Jan. 30.
The fixed interest rate for on-bill financing will be 3 percent, said Dayle Zatlin, speaking for the New York State Energy Research and Development Authority, which operates the revolving loan fund.
That’s 25 percent lower than the 4 percent NYSERDA charges for traditional loans through its Home Performance with Energy Star program, and 14 percent less than the 3.5 percent interest rate for customers who arrange for automatic bill payment.
Because the loan installments are included on the utility bill — and carry the same penalties for nonpayment, including service termination — the on-bill loans are considered less risky, said Zatlin, of NYSERDA.
“We anticipate the financial markets will provide the funds to NYSERDA at a lower interest rate because of the added assurance of repayment,” she said.
Buyers must sign a mortgage to get on-bill financing, which means interest payments may be tax deductible, NYSERDA officials said. They advise borrowers to consult with a tax professional.
The NYSERDA mortgage is subordinate to other home mortgages and cannot be used to foreclose on the property, Zatlin said. But the mortgage ensures that any purchaser of the property is informed of the debt, which will remain on the home’s utility bill if the property changes hands before the balance is paid off, she said.
The loans are typically repaid over five to 15 years, Zatlin said.
State regulators have been working with utilities to implement on-bill financing by next June. Cuomo said Wednesday that he pushed up the schedule to make it available this month. The service will be available to residential customers by Jan. 30, and to business customers within the next few months, Zatlin said.
To qualify for a loan, a homeowner must participate in NYSERDA’s Home Performance with Energy Star program. The first step is to contact a certified contractor, who will assess the home’s energy performance and recommend improvements.
NYSERDA uses a loan servicing company, Energy Finance Solutions, to process the loans. Customers pay EFS a processing fee of $150. NYSERDA also pays EFS $175 per loan.
NYSERDA uses part of the money collected from interest payments to reimburse utilities for their costs to provide billing. Utilities get $100 per loan, plus 1 percent of each loan’s value.
The state will limit the availability of on-bill financing for the time being, until its effectiveness can be assessed, Zatlin said. For the Upstate territory of National Grid, the option will be limited to 6,665 residential customers, she said.
To learn moreMore information about NYSERDA’s residential energy-efficiency programs and links to loan applications are available at nyserda.ny.gov/residential or by calling 877-697-6278.
Contact Tim Knauss at tknauss@syracuse.com or 470-3023.
http://tourism9.com/
2012年1月6日星期五
Can Credit Unions Replace "Predatory" Lending?
Felix Salmon has a really interesting piece about a professor who took out a loan from a personal finance company–at a roughly 40% APR–after her credit union turned her away.
But I don’t think that they are somehow going to substitute for the lenders at the bottom of the risk market: loan companies and payday lenders. Felix, who is on the board of a credit union, may have some insight into this that I don’t, of course. But right now, I don’t see it.
That’s not the only reason to think that these loans are expensive. Since they are often for very small amounts, they have high transaction costs relative to the loan amount–it takes just as much time to process forms for a $200 loan as it does for a $10,000 loan.
There’s also the structure of the loan, which involves a lot of intensive interaction with the borrower. Remember, the short term (and the fact that they’re tied to payday) helps hold down the default costs on payday loans. It’s also really expensive to achieve; it means maintaining a storefront with people in it at all hours.
Credit unions might make those loans somewhat cheaper by layering that overhead on top of existing operations, and because they don’t need to make a profit. On the other hand, credit unions lack expertise and skill in this sort of loan. In general, credit union loans are not wildly cheaper than similar loans from other institutions.
But I suspect that what Felix has in mind is substituting a different–and much cheaper–type of loan for the payday loans. And I’m skeptical that this can happen. All of the research that I’ve seen on these super-expensive loan products indicates that most of the people who are taking them are not doing so because they don’t understand how high the interest rate is, but rather, because they have exhausted all of their other borrowing options. (And frequently, the alternative is even more expensive: a bounced check fee, a utility disconnect that will require a hefty fee for reconnection, a lost day of work because of car trouble).
So I take it that the reason that the credit unions aren’t putting them into cheaper loans is that they can’t. The cost of an unsecured loan to someone with terrible credit is high because those loans go bad very frequently, resulting not only in the loss of funds, but in considerable overhead expended on collection. Particularly in the case of credit unions, who–as my auto loan illustrates–work very, very hard to keep their members’ loans from going bad.
And I’d guess that credit unions, for all sorts of reasons, don’t really want to get into the super-expensive-super-risky loan business. That’s why they focus on figuring out how to help you not need the money. Obviously, that is going to be a bad outcome in some particular cases, because no system is ever perfect. But on balance, I can understand why credit unions aren’t eager to get into the payday loan game.
1. They’re losing money on it, and a lot of credit unions can’t be in the business of charity to people who need payday loans
2. Their lending population is somehow different from those who need regular payday loans (state paychecks are pretty steady, and the program requires direct deposit)
3. It’s a game changer that will revolutionize payday loans.
I’m pretty skeptical that #3 is the answer–these loans are cheaper than most credit cards, and that’s a very competitive space. On the other hand, all game changing innovations suffer from not having been done before: that’s no proof that they can’t be. I’ll only note that the general experience of nonprofits in this space seems to be that they have to charge high APRs (or fees that amount to the same thing) in order to make up for the costs.
More From The Atlantic
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Is it a good idea for the professor to be taking out loans at 40% interest rates? Really, she didn’t have much of a choice. She needed the money, she got precious little help from her credit union, and the loan company was friendly and extended her the cash on terms she could afford.Salmon, who is an enormous booster of credit unions, thinks that this points to directions for reform:
What’s more, the professor’s relationship with World Finance has indeed improved her credit. Since taking out that first loan, she’s obtained two different credit cards, and also bought a brand-new BMW with 2.9% financing. All with essentially no help at all from her primary financial institution, which is Missouri Credit Union. The debt the professor is taking on may or may not be wise, given her unique individual circumstances. And the credit union could in theory be a valuable resource in terms of helping her work out whether, for instance, she can really afford that car. But the relationship there is broken, and I see no chance that it will be fixed.
James does admit that he let the professor down: “I think we did fail her,” he says, “and I don’t think we did what we should have done.” The credit union dropped the ball with respect to her loan application, which was left in limbo when she was in a time of need. But at the same time, he also admitted to me that the credit union would not have given her the unsecured loan she was looking for.
The professor’s credit score is now good enough that she qualifies for a mortgage; it wasn’t before. That’s the kind of help a credit union should be able to give, and it’s disappointing that Missouri Credit Union doesn’t seem to be able to bring itself to do that. If the professor (a) wanted credit and (b) wanted to improve her credit score, then the loan company was, sadly, the place she needed to go.
So two things are needed here, I think. The first is effective regulation, with teeth; I hope that Richard Cordray, newly installed at the head of the CFPB, will start providing that soon. There’s no time to waste.I too, am a fan of the credit union. We got our mortgage through Navy Federal, and even though we could probably refinance to something cheaper, we’re sticking with them because I like the customer service and the fact that they will bend over backwards to fix issues with your loan. (Back when I had a car loan, it took me a year to straighten out issues with my car titling, and as long as I made the payments, they kept giving me more time).
But regulation isn’t enough: we also need alternatives — non-predatory financial products which allow people with bad credit to repair that credit and get back on their feet. Many credit unions provide such products, but as we’ve seen, many credit unions don’t. And credit unions are in any case often difficult institutions to navigate: it’s never entirely obvious who’s allowed to join any given one. Can someone set up a Kiva for America? Help is needed, here. And it’s very hard to find.
Credit unions are not charities. They have responsibilities to the members who deposit money with them: they cannot make loans that are reasonably likely to lose money (at least in aggregate). And while the interest rates on products like payday loans are indeed eye-popping, the companies themselves are not especially profitable. This suggests that the reason the loans are so expensive is that they cost a lot to make.
Why is this? For starters, because the risk of default is very high. It’s hard to get good numbers, and estimates vary widely, but I’m pretty sure that they’re well north of 10%. That’s a pretty high default rate for any type of loan, but particularly one where the term is measured in weeks.That’s not the only reason to think that these loans are expensive. Since they are often for very small amounts, they have high transaction costs relative to the loan amount–it takes just as much time to process forms for a $200 loan as it does for a $10,000 loan.
There’s also the structure of the loan, which involves a lot of intensive interaction with the borrower. Remember, the short term (and the fact that they’re tied to payday) helps hold down the default costs on payday loans. It’s also really expensive to achieve; it means maintaining a storefront with people in it at all hours.
Credit unions might make those loans somewhat cheaper by layering that overhead on top of existing operations, and because they don’t need to make a profit. On the other hand, credit unions lack expertise and skill in this sort of loan. In general, credit union loans are not wildly cheaper than similar loans from other institutions.
But I suspect that what Felix has in mind is substituting a different–and much cheaper–type of loan for the payday loans. And I’m skeptical that this can happen. All of the research that I’ve seen on these super-expensive loan products indicates that most of the people who are taking them are not doing so because they don’t understand how high the interest rate is, but rather, because they have exhausted all of their other borrowing options. (And frequently, the alternative is even more expensive: a bounced check fee, a utility disconnect that will require a hefty fee for reconnection, a lost day of work because of car trouble).
So I take it that the reason that the credit unions aren’t putting them into cheaper loans is that they can’t. The cost of an unsecured loan to someone with terrible credit is high because those loans go bad very frequently, resulting not only in the loss of funds, but in considerable overhead expended on collection. Particularly in the case of credit unions, who–as my auto loan illustrates–work very, very hard to keep their members’ loans from going bad.
And I’d guess that credit unions, for all sorts of reasons, don’t really want to get into the super-expensive-super-risky loan business. That’s why they focus on figuring out how to help you not need the money. Obviously, that is going to be a bad outcome in some particular cases, because no system is ever perfect. But on balance, I can understand why credit unions aren’t eager to get into the payday loan game.
Update: Apparently, some are. But the products often aren’t substantially cheaper than regular payday loans–though Felix highlights this program at a State Employees credit union, which does look much cheaper.
Felix asks me if there’s any reason that last program can’t scale. I think there are three possibilities:1. They’re losing money on it, and a lot of credit unions can’t be in the business of charity to people who need payday loans
2. Their lending population is somehow different from those who need regular payday loans (state paychecks are pretty steady, and the program requires direct deposit)
3. It’s a game changer that will revolutionize payday loans.
I’m pretty skeptical that #3 is the answer–these loans are cheaper than most credit cards, and that’s a very competitive space. On the other hand, all game changing innovations suffer from not having been done before: that’s no proof that they can’t be. I’ll only note that the general experience of nonprofits in this space seems to be that they have to charge high APRs (or fees that amount to the same thing) in order to make up for the costs.
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