Let’s speak the truth about the “Payday Loan Industry” for a minute

by The CAB Man Texas on December 15, 2016

The Texas Organization of Financial Service Centers (“TOFSC”) is:

An Industry Trade Association mainly comprised of small and mid-size business owners in Texas who offer short-term, small-dollar loan services.  You may be more familiar with our industry and it’s more commonly referred to name “The Payday Loan Industry.”  In fact, that term is loosely (not really accurate) used to describe many kinds of financial services that exist in the U.S. market, such as Check Cashing, Auto Title, Payday, and Installment Loans.  Titles aside, it is most important to understand that our Association members are in business to provide a needed service to Texas citizens.

The “Payday Loan” in Texas:

Members of TOFSC are small business owners in towns spanning across the State of Texas.  We are licensed “Credit Access Businesses” and are legal business owners dedicated to maintaining the highest level of compliance with the Regulations of the Texas Office of Consumer Credit Commissioner.  Many of our Members sit across the desk from our customers and providing loan services them directly.  Our customers value us and we treat them fairly.  In fact, in 2015 over 1.6 million Texas consumers used our services.  Complaint averages each of the last two years have been under 500 per year.  That is a per loan customer complaint % of .0003125%.

Banks and Other Industries causing larger scale problems:

Banks earn a reported $30+ billion per year in Overdraft and NSF charges from the same customers the Payday Industry serves.  The Payday Industry earns less than $9 billion per year industry-wide.  Even though we are a much smaller industry in terms of revenue, banks have gotten a pass while the Payday Industry has taken the full brunt of the media and Consumer Advocate onslaught.  And, when the same APR% calculation methods are applied to bank NSF and Overdraft charges they can be as high as 1,600% which is 2-3 times greater than many Payday Industry products.  Many Consumer Advocates suggest the banks should be the saviors of what they call the “payday loan problem,” but the truth is the amount of money the banks earn from our shared customers should be more heavily scrutinized.

The Annual % Rate (“A.P.R.”) Issue:

The citation of the triple digit A.P.R. %’s that many of our products carry is the easiest and most frequent argument used against us by the media and Consumer Advocates.   It is very true that our industry’s products can be expensive for consumers – this fact is always disclosed to customers before and throughout the loan process.  However, opponents of our industry rarely if ever discuss the extremely high defaults and fraud %’s that must be absorbed to maintain profitability.  After subtracting bad debt, rent, payroll, and other basic operating expenses, our small business owners are focused on simply making a profit no different than every business in Texas.

Significant regulations are already in place despite suggestions otherwise by the News Media: 

The States have decades of experience in dealing with our industry and already have many helpful regulations in place.  In Texas, the Office of Consumer Credit Commissioner conducts examinations continually, where each licensed business is taken through an 80+ point examination checklist.  Consumer loan documents used in Texas include compliance with a long list of key Federal and State regulations such as: Truth in Lending Act, Military Lending Act, Fair Debt Collections Practices Act, Unfair and Deceptive Trade Practices Act, and Fair Credit Reporting Act.  Arbitration and dispute resolution is offered, Privacy Policies are in place, and customers are given the “Right to Rescind” for up to three days.

This blog post was written by Michael Brown, President of CAB Consulting and the Texas Organization of Financial Service Centers.  He can be reached at 214-293-8676, or Michael@CreditAccessBusiness.com.

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