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Advertising and Payday and Title Lending: How Do Lenders Target Borrowers?

posted by Pamela Foohey

Are bigger payday and title lending companies better for low-income borrowers than smaller companies? Jim Hawkins (Houston Law Center) takes up that question in a new article which reports the results of his study of the advertisements of payday and title loan companies with storefronts in Houston, Texas. The results are quite timely given that the Consumer Financial Protection Bureau is poised to release regulations for payday lenders. Based on Colorado's experience with payday lending reform, these regulations have the potential to increase large lenders' market share. What might be the consequences of consolidation?

Hawkins begins to answer that question by comparing big and small lenders located in Houston based on their compliance with Texas regulations, prices, use of "teaser rates," and attempts to target minorities and women through storefront and online advertising -- all of which are practices that critics of payday and title lending have identified as particularly problematic or exploitative. His results overall are mixed. For instance, larger companies in Houston are more likely to feature minorities in advertisements, and smaller companies are more likely to feature women. Perhaps the most interesting finding is that there is price competition among these companies in Houston: larger companies tend to charge higher APRs than smaller companies. Given that the CFPB regulations will not cap interest rates, might there be unintended consequences of regulations that may bolster large lenders?


Gosh, regulatory economics strikes again.

With utter predictability, like all regulatory agencies the CFPB will be implicitly or explicitly captured: it surveys the industry; gets an earful from the big players; crafts regulations to standardize industry operations; those regulations favor the big players (partly because of compliance costs); the regulations limit competition by forbidding new entrants to innovate (innovation violates regulations made process- rather than goal-oriented for the convenience of the CFPB as well as the big players); reduced competition fosters price increases (oligopolists/monopolists ALWAYS reduce output and raise prices to increase profits); consumers suffer! Rinse and repeat.

As is well-known, all regulatory agencies have to go to their regulatory targets (directly or via a revolving-door personnel policy) for input or else new regulations will be simply impossible to comply with and judicial or Congressional intervention will follow. However, regulatory targets will always try, and nearly always manage, to persuade the regulator to implicitly create and police a cartel by prescribing regulations which limit competition among regulated entitities (and in most cases insulate cartel members from angry consumers who might get relief under anti-collusion or anti-fraud laws if abusive industry practices were not endorsed and prescribed by regulation).

For big players in any industry regulation is a welcome relief from market competition. For political patsies who promote new rule-making regulatory agencies (as opposed to straightforward statute law), regulation represents the triumph of hope over experience. Sadly, the hope of political patsies is evergreen: no matter how many alphabet agencies are captured (SEC, CFTC, OCC, HUD, FCC, FAA, etc-etc-etc) the patsies will always line up to support another one.

When it comes to getting a title loan or payday loan the most important thing is for the consumer to be educated about the product. This way they are able to repay the loan back on time, and as quickly as possible, as to not be hit with high rates. Lots of big companies, don't really get into the details of planning and budgeting for a loan. Then people can use the loans for emergency reasons, which is the only time they should be used, and then are able to repay them back as quickly as possible so that they arn't that expensive. Education is the most important thing about these types of loans, as the rates are not as important if used correctly. Smaller companies like http://badcreditlifeline.com/loans/ really give great info about planning and budgeting, as well as info about the product, which I think the bigger companies should try and do more so. This way people can use a loan responsibly when they have financial emergencies.

Getting a payday loan can be a lot easier than most people think. Regardless of bad credit, financial woes, or no money in the bank, there are ways to get cash fast. QuickCashToGo is an incredible website that is very helpful for anyone seeking financial assistance and needs a little help staying afloat between paydays...check out their site: http://goo.gl/tize6O

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