Those of us in the Cash Advance or Payday Lending Industry have heard the term, and certainly those outside of our industry have seen the words "Predatory Lending" associated with some form of short-term lending at one time or another. One reason would be that the word itself paints a powerful picture. Being that the word "predator" is most commonly associated with modern criminal acts (i.e. Sexual Predators) or that of a wildlife safari chase which doesn't end so well for the prey whilst the "predator" licks it's paws clean, the term "Predatory Lending" was intended to conjure up negative feelings regarding these alleged practices. Whether these words are being carefully chosen to convince legislators to regulate our industry, or they are just tossed around by a local reporter who felt it easier to just slander our industry rather than actually research any statistics regarding our industry, the term "predatory lending" is intended to hurt us. But sticks and stones...
(From the CFSA article
http://www.cfsa.net/policymakers/not_predatory.html)
In an address to the Texas Association of Bank Counsel in South Padre Island, Texas, October 9, 2003, Governor Edward Gramlich said that predatory lending typically involves at least one, and perhaps all three, of the elements listed below.
Three Elements of Predatory Lending, according to Federal Reserve Governor Gramlich
1. Making unaffordable loans based on the assets of the borrower rather than on the borrower’s ability to repay an obligation.
But, Payday advance is a small denomination, un-collateralized, unsecured short-term financial transaction based on the borrower’s steady income.
2. Inducing a borrower to refinance a loan repeatedly in order to charge high points and fees each time the loan is refinanced (“loan flipping”). Most state laws prohibit the extension of a payday advance by paying an additional fee (rollover). CFSA members do not encourage rollovers and, in states where rollovers are permitted, limit them to 4 or the state limit, whichever is less.
3. Engaging in fraud or deception to conceal the true nature of the loan obligation from an unsuspecting or unsophisticated borrower.The cost of a payday advance is fully disclosed to customers on signage and in disclosure agreements. It is a one-time, flat fee and there are no hidden charges, balloon payments or accruing interest. CFSA members also provide an educational brochure emphasizing responsible use of the product and offer a free right of rescission should the customer change his mind.
