According to Wikipedia, a “payday loan is a short term loan that is intended to cover a borrower’s expenses until his or her next payday”.
Payday loans, also known as cash advances, can easily be obtained by submitting an online application form. These forms usually take less than five minutes to fill out. Once a payday loan lender receives your application Read the rest of this entry »
President Obama this morning signed the financial overhaul into law one of the most sweeping overhaul of financial regulations since the Great Depression. This law was mainly pursued by the democrats, which supposedly is to protect the consumers from both the Wall Street and the Main Street Lenders.
President Obama called “the strongest consumer protections in history”. He also said “Because of this law, the American people will never again be asked to foot the bill for Wall Street’s mistakes”.
Many experts believe that this bill misses the point, and that is to truly reform the Wall Street that was responsible for the financial meltdown in 2008. Also they believe this bill will have too much burden on smaller banks and lenders, including the payday lenders.
Many payday lenders, already over regulated by their own States, believe that addition of regulations by federal government may hurt their business, shrinking their business, or even worse driving them out of business which will result in more job loss.
There seem to be many opponents to the Payday Lending industry most of whom share the same few arguments against our industry or practices. I wanted to cover a few of these common “misconceptions”….
“The Payday Loan industry are a bunch of heartless ’sharks’ whom exploit the poor and minorities in order to substantiate their own obscene profits….”
I’ve heard the above statement, or parts of it, used to criticize our practices as members of the Payday Lending industry. I believe wholeheartedly that these statements above are not true, and like any business there may have been a few “bad apples” early on who are responsible for creating this negative image of our industry.
“in order to substantiate their own obscene profits….”
I would hardly call minimum wage an “obscene profit”. In reality the nation’s largest payday lender, Advance America, reported earnings that calculate out to be a mere $5.88 per hour per location.
“whom exploit the poor and minorities”
When offering short-term loans averaging around $300 to folks with bad credit, it wouldn’t make sense to set up your business in Beverley Hills or Wall Street! After all, as a Payday Lender we are offering working class families an option to get a loan in a pinch whenever they need it. And like any business you want a location that is within reach of your primary market. Payday Loans by nature, will be used by lower-income families to get cash when they need it. As far as “exploiting minorities”, the claim is just ridiculous and is simply a result of offering loans to low-income families who don’t have any other options for credit, and lower-income neighborhoods usually tend to have a higher percentage of minorities.
“heartless sharks”
Of course there have been a few “bad apples” in our industry, just as any other. But the vast majority of lenders today realize that we need to fight against this image of “predatory lending” in order to continue offering credit to those in need. The CFSA is our industry’s lobbying group, and promotes only responsible lending practices. We are also required to fully disclose all terms of any loans given, and must follow strict collection guidelines.
The payday loan industry is one of the fastest growing industries in the country. As Americans’ paychecks getting less and their living expenses getting more, more Americans are taking payday advance loans.
But as the industry grows so are its foes. There was a good article on how some payday lenders may fear federal regulation that author, in my opinion, does a good job by a well balanced reporting.
As a payday loan resource, we at About Payday Loans find it necessary to indicate that if some arguments against the payday lenders hold water. Some payday lenders, in particular those that are affiliates or brokers, may give false promises, sell their customers’ information without their permission, and charge hidden fees. But does existence of a few bad lenders or brokers that make the entire payday lending industry bad?
The answer is simple, NO. Payday advance loans are in demand by consumers and they should exist. But that is why payday loan resources like us exist that recommend borrowers do their research end only take payday loans from trusted payday lenders. Make sure you take your loans from a direct payday lender when it is possible.
Read all the fine notes and do bother to call in if you are taking an online payday advance and ask any questions you have from that payday lender. Actual payday lenders should have a live customer service center that are there to answer your questions over the phone at least during the business hour so make sure you look for that also.
Answer is simple. The major banks and financial lending firms of Wall Street. In our article earlier about, ARP applied to over draft fees, we pointed out that Wall Street banks made almost 38 billion dollars in overdraft fees last year and of course they are hoping to keep this going perhaps even stronger. However they find the payday lending a threat to this huge revenue as many people apply for a payday loan to avoid their bank overdraft fees and since payday lending is on the rise, payday lenders and other main street lenders could be a potential threat to these Wall Street banks and lenders.
So they have gathered up their Army of lobbyists, which according to payday pundit, an army of over 1500 federal employees and 73 members of congress, to influence Washington’s policy making and make the financial reform bill(s) less about them and more about the payday lenders and other alternative lenders even though these smaller lenders had nothing to do with the financial melt town of 2008.
If you do your research, you can see that payday lenders and other alternative lenders are not part of the financial problem and in fact are part of the solution to our current financial crisis because these lenders are helping the cash flow to the Americans when they needed a quick loan when major banks were not lending.
(Please read parts 1-3 before continuing)….
As much as I WANT to give specific names and contacts, I cannot turn this posting into an endorsement for any particular companies or services (trust me, it’s been hard to “hold back”, and not name-drop companies/people/services at nearly EVERY step of this post!), but I trust in my readers to run a quick search to hunt down the companies and contacts themselves. Honestly, that is a good habit to get in the practice of….. if you can ask a question, you CAN hunt down the answer! Anyway, find out what options payday lenders have for credit bureaus and their perspective costs and options to you as a lender. Learn about what it will take to sign up for their services, and what they can offer you as an internet lender if you ever choose to go that route. As always, try to get some info OUTSIDE of their salesperson, and ask some people in the industry to share their experiences with you. Always try to learn from someone’s costly mistake, so that you can hopefully avoid it yourself!!
Now begins one of the toughest, and sometimes most costly parts of preparing to open your PDL business….. the hunt for the right software!! I cannot stress the importance of this! So often do I hear/see the tales of heartache and lost profits due to purchasing a horrible entry-level software app that literally stalls the growth of your business!! This is due mainly to the fact that Payday Loan software can be very costly, even at the “mid-level” price tier. Try not to think of the software pricing in terms of “how much it costs to purchase and maintain” (there are almost ALWAYS monthly support costs. If not, ask why!) as much as you want to. The price tag is big and shocking, but thinking of the purchase only in terms of immediate cost will only limit your business’s potential! After all, GOOD payday lending software will save and organize ALL of the data needed to make future business decisions (“We’re losing money. Why? OH, here it looks like we need to adjust our underwriting, based on these percentages….”) and by only thinking of the immediate price tag of the software, you are almost admitting defeat with that mindset at time of purchase. If your future self stepped out of a time machine and said to you right now, “Don’t get cheap software. When you decide to become an internet lender in 3 years, this application WILL NOT do that, and when you try and convert to new software the data will not transfer! It’s going to cost you an extra $50,000 now to get setup correctly, you’ll still have lost/mis-categorized data, AND think of the money you didn’t know you were losing the last 3 years just due to lacking functionality!! Don’t go cheap!!”…. Well, you’d hopefully listen, after asking of course how you ended up with that time-machine! (I smell a business opportunity!!)
Honestly, getting the WRONG software is a very common mistake. You should consider a few of the following questions while shopping for payday loan software solutions…
-Can I eventually run multiple stores?
-Can I lend online?
-Updates? Free, or for a charge?
-Terms of support? Cost? Hours? Availability?
-Initial setup fees and procedures.
-Are there programmable “security clearances”, so that managers can view more than just a teller? (For protection. Most PDL theft, like most businesses in general, is internal and can be prevented with good software and procedures).
And that is really just the beginning when it comes to hunting down the right software.
That ends my 4-part series of “How to Start a Payday Loan Business” and I hope that gets some of you started in the right direction. If there is one more thing I can stress, it would be to…
Keep an open mind! You can never stop learning! Be open to investing in a “consultation” with experienced professionals in order to analyze your business figures specifically and to give your business pointers as to increase profits substantially. In nearly every case of a quality Payday Loan Consultation, even experienced lenders are able to learn how to make more money, even after consulting costs. After all, even a pro-golfer has someone analyze their swing occasionally!
(Note: Please go back and read Part 1 and 2 before continuing)….
Internet
There is a universe of Payday Loan information available out there, but you’ll soon find out that there is a lot of outdated and irrelevant information. There are sites out there that specifically target popular keyword searches (ones that you are likely to use in YOUR quest for information!) in order to re-direct you to sites that you did not intend to visit, or to attempt to boost their own “pay-per-click” campaign. You’ll want to trust your instinct and promptly leave any sites that look “cheap” or seem like the information is too general or has a “forced” flow to it. Chances are they have an agenda withing their website (sales, etc.) other than providing you with up-to-date education, OR they don’t care enough to update their info. Either way, just leave and find another site. This means you will want to bookmark any sites that you view as trustworthy and relevant to your searches.
On a side note, bookmark pages that provide updates to current legislation (in YOUR state especially, and others!) so you can always check in on new developments in your state regulations. I would suggest the CFSA page, the “Payday Pundit” for current legal developments and updates.
Books/Cd’s etc.
Although the internet is free and arguably has the ability to provide more up-to-date information than traditional reference material, I have seen great results from people who have purchased training manuals and payday loan start up guides. And though you can find more info for free online, there is something to be said of having a bulk reference guide handy during your first year especially, and take notes in it! This method, for most of us, still provides a level of efficiency rarely matched by even the most savvy of internet surfers.
Of course I cannot vouch for all of the printed reference materials, so try to get a direct reference to a particular guide before investing in one.
Unless you are coming directly FROM a collections business or part of that industry, you will probably want to put some concentrated efforts into learning about collections and collections laws/practices. The Federal Trade Commission (FTC) has placed some specific guidelines for collections under the Fair Credit Act. Learn these, and abide by them as they will help keep you out of court. Don’t be TOO soft on collections either! There are ways to collect within the guidelines of the Fair Credit Act, so learn these tactics and how to be “pro-active” in avoiding these defaults (ACH, in-house pictures of borrowers etc.) before you have to collect.
You State has specific laws regarding bankruptcies and what that means for you as a lender. Learn about what a Payday Loan customer would have to do to apply for bankruptcy status. Learn the differences between Chapter 7 and Chapter 11 bankruptcies.
And so continues my series, “How To Start a Payday Loan Business” which covers some basic suggestions for, and common mistakes of those looking to get started in our industry with their first “Cash Advance” or “Payday Loan” business.
As mentioned briefly in Part 1, I would like to reiterate the following: There is NO quick answer for how one should start a payday loan company!
I am merely attempting to save you some time and effort by avoiding common mistakes, as well as teach you some areas that you should focus on at start-up. Hopefully within these posts you will see that starting your own payday loan business is not an easy task and that you should take as much time and energy possible to study current laws and to seek both legal council AND perhaps the services of an experienced payday loan consultant to analyze your specific data. That said, let’s discuss some more points on “How to Start” your own payday loan business….
I am assuming your first PDL business will be a “brick and mortar” model, in your home state. You will first want to find out (and get a printed copy) of all of your State’s current laws. Contact your State finance department and inquire about applying for a license. Learn what it takes and what is required to apply. Ask questions, don’t just sort out the legal jargon all by yourself, put your State examiner work!
I’m not going to do into the specifics of explaining here what an ACH (Automated Clearing House) transaction is, but in short it is a type of “direct deposit/withdrawl” that payday lenders and borrowers use to get their funds directly transferred to their account. This subsequently decreases your default percentages, but at a cost.
Learn what companies are out there and the costs and terms associated with their services. Let them know upfront that you will be using their services as a PAYDAY LENDER, as some banks view our product to be detrimental to their NSF profits, there have been recent cases of some major ACH provider’s associated banks denying them to work with payday lenders anymore. Banks are pretty sneaky about putting the pressure on our business, but there are still PLENTY of ACH providers still working with Payday Lenders.
Contact banks which you will potentially be working with as a Payday Lender. Make sure to mention, of course, that you are going to be a Payday Lender. Find out of any details or restrictions, and what it takes to open an account with them as a Payday Lender.
Keep an eye out, I’ll be back very soon to post the final part of my “How To Start A Payday Loan Business”!
One of the most common questions I encounter as a writer for the Payday Lending industry, in one form or another, is “How do I start a Payday Loan operation?”. In fact, I almost dread the question at this point, because in my opinion it represents a hunt for an easy answer to a difficult question. On top of that, there are so many common mistakes that people make when first considering getting into the Payday Loan or “Cash Advance” industry.
Which is why I wanted to post a “response” to the question of “How to Start A Payday Loan Business….”
First of all, before getting anywhere near the ACTION of actually starting a Payday Loan business (PDL) I would encourage you to read and learn as much as you possibly can. Expect to spend months of dedicated reading, networking, and even (wait for it….) REAL LIFE RESEARCH!! Go to a local PDL business and get a loan, even though you don’t need one. Ask as many questions as possible. If you’re not prepared to invest the little $$ it will take to buy books on the industry, take out loans yourself for the education, pay for legal advice, and to spend real time networking then this industry is not for you.
Secondly, I will respond to nearly 90% of peoples first and most common misconception.
DO NOT START with internet lending.
“Why not? It’s cheaper than starting a “brick and mortar” store, and you can reach so many more customers! Why on earth would you encourage me NOT to start there, Gabe?”
Great question “readers”, let me go ahead and jump right on that one. There are several reasons why you should first “cut your teeth” in a brick and mortar model.
First off, setting up a direct online lending site is probably more costly then you would imagine. The domain names are very scarce, and decent ones are EXPENSIVE! If you purchase one, expect to spend the better part of a year investing in an aggressive SEO (search engine optimization) campaign in order to hopefully someday get your site popping up in popular related searches… After all, if you wanted an online loan would you go to page 1 or 100 of a search of “bad credit loan online”? That’s what I thought. Your site could possibly NEVER get close to 100. The big companies (I’ve heard from insiders!) are spending up to over $100,000 PER MONTH on SEO to keep a foothold on that page 1 spot!
So that leaves you “purchasing” leads to fund online.
Also…..
-online loans tend to default MUCH higher.
-you need MUCH more $$$ to fund online loans, if you actually get to the point of bringing in the amount of applications you desire, as opposed to growing slowly with a brick and mortar location.
-it is costly and difficult to get licensed in multiple states, in order to safely lend across multiple state borders. After all, that’s the point of online lending as opposed to starting a storefront, right? Well, the majority of lawsuits against online lenders is against those using the “choice of law” model, meaning they follow their own states PDL laws, while lending online across state borders. More and more, this is becoming VERY risky!
-collections can be VERY difficult for online loans. Also, if you START with internet lending, you probably aren’t any good at collecting yet (unless you are coming into the PDL industry from the collections business, as many often do!)
That said, you can see why many peoples first mistake is assuming that getting into online lending will be more profitable, and cheaper to start.
The next part of this series will focus on some other common mistakes, and will guide you to the proper channels and topics to immerse yourself in while considering starting your own Payday Loan business. As you can see, there is no “quick” answer. But like any other business, those who take the proper time to educate and prepare themselves, will generally be the ones to rise above and prosper in the long-term. There is no substitute for knowledge and preparation in this industry!!
Although I’ve touched very briefly on this subject in some older posts, I wanted to dedicate a post to discussing the different types of online lenders.
As we’ve already discussed, there can be many different names for virtually the same type of loan. When you’re online looking for a short-term (1 month or less) loan for $1,500 or less (although typically closer to $300) then chances are that you will end up looking at a “Payday” or “Cash Advance” loan. Regardless of the name, they are for all intents and purposes the very same product.
That said, you will typically find 2 types of lenders on the internet when looking for a “Payday” loan…. Direct and Non-Direct.
Non-Direct lenders are defined by the fact that they are not the business that will actually be lending you any money. A non-direct online loan site will generally market themselves as “finding you the cheapest loan available” or claim that they will “let lenders bid for your business”. Although that may be one interpretation, I would personally define a non-direct lender as a “internet website that takes your application information and sells it as a ‘lead’ to actual lending institutions”. Now I’m not going to speak too negatively about non-direct lenders, although I do feel that the majority of online loan complaints that I have heard are from non-direct lending sites. This is mainly due to the fact that the site at which you fill out your application is not responsible for any of your loan terms, or to assist you with customer service if you have any problems. Ultimately they are only responsible for adhering to their own posted terms/conditions/privacy policy/disclaimer etc. Generally their interest lies only in generating more “leads” to sell off to lenders. They really couldn’t help you with any problems that may occur with your loan, and often times do not even know who funded your loan once you’ve been approved. This can seem “mis-leading” to some, because all they see are the bright lights, the “APPROVED INSTANTLY” and “CASH DEPOSITED NEXT DAY” tags flashing on the screen, and because they never left the website they assume that the company operating the site is responsible for the loan….. WRONG!!
Direct lenders are just that… they directly lend you your money. They are generally a bit more cautious of customer service issues, being that as your direct lender, they would be the ones dragged into court if someone were to pursue a complaint to that extent. Direct lenders are more apt to have a customer service phone number set up to call (sometimes even 24/7!) if you have a problem. I always suggest calling BEFORE you have a problem, to make sure someone is actually there! Some examples of direct lenders would be check n’ go or pay1day.com
Although there happy customers from both types of sites, it helps to know what’s actually going on behind the scenes when you apply for a loan. As always, I welcome your comments, questions or suggestions!!
