Hope for Helping the Prospective Payday Loan Customer

Short term (payday) loans and high interest consumer installment loans continue to deplete low income households of micro dollars and their communities of macro dollars. Although the CFPB seems intent on supporting the depletions, a good number of states have provided some relief.  Even in states without interest rate limitations there are a couple of ideas that can help.

Chris Peterson and Nathalie Martin have provided legal support  to a movement to help consumer advocates convince municipalities  to enact ordinances that assist around the edges even though State  constitution and federalism block them from more meaningful reform.  A good number of local jurisdictions have enacted ordinances which  range from requiring a fee and a city license, to more restrictive  zoning and providing a list of alternatives and putting up signs that  make the borrowers more aware of what they are signing up for. Most of these are aimed at payday lenders and  title lenders but a few are expanding to consumer installment loans. Although these restrictions are minor, these efforts help buildanti-predatory lending coalitions.

The simpler and more to scale effort has to do with employer  based alternative lenders that provide such loans on a more responsible  installment repayment basis. In the past few years several business  models have emerged, but they depend on the employer making them available under their “employee assistance” plans or the like. There are two basic models; the installment loan model such as  TrueConnect, and the wage advance models of Payactiv and a host of  others. TrueConnect and Payactiv offer a free series of budget counseling. The installment loan model with lower interest rates appears  sound and well regulated. These provide loans of between $1000 and $2000  with payment at more reasonable rates and fees and payable in installments, usually over a year. The wage advance model is helpful for  very small loan amounts, but is unregulated in most jurisdictions and has several concerns. First, a number of bait and switch entries  are not what they appear and if the employees borrow or takes an advance  for any significant percentage of their normal wages it is nearly impossible for them to repay from their next paycheck. Many borrowers take multiple  wages advances each year. A center at Washington  University in St. Louis is studying these issueshttps://socialpolicyinstitute.wustl.edu/items/workforce-financial-stability-initiative/ People at Pew Trusts and NCLC and CFE Fund are watching carefully  and with insight.  There is NO downside to an employer making responsible installment loan models  available and there are enormous benefits to both the employer and the employees, yet the levels of participation of employers are still  much too small.