Small Loans Come Under Heavy Fire

The world is full of financial hardship, and American society possesses a great deal of controversy concerning lending. Unfortunately, short term lending, such as payday loans or title loans, creates a structural void within American society. According to Wikipedia, “Structural inequality is defined as a condition where one category of people are attributed an unequal status in relation to other categories of people” (wilipedia.com). When working class Americans apply for a payday, the unequal status between upper and middle class possess a bigger separation financially. The never-ending process of a short term financial fix becomes lifelong debt. Thus, middle class society becomes lower class society. Eventually, working class society will struggle to say above the poverty line. In addition to an imbalance in society classes, short term lending targets consumers who life paycheck to paycheck. In Rigging the Game by Michael Schwalbe, the author explains the reproduction of inequalities. Schwalbe discusses the different kinds of capitals human, social, and cultural (10). The three capitals unknowingly shape Americans social system. Many businesses capitalize on these capitals knowing no laws or regulation exists to stop them from capitalizing on individuals who no faults of their own were born into these unfair capitals. As a result, short term lenders possess the ability to have extremely high interest rates and outrageous fine print penalties because there is little

the borrowers. The lenders of financial institutions no longer trust approving loans to less than

Predatory lending has caused many conflicts in the American society. Victims who fall for predatory lending are

One of the recent pieces of legislation authored by Royce West is the Texas State Senate Bill 121 (TX-SB121) which relates to businesses that let people with bad credit borrow money in exchange for things such as titles etc. This bill was introduced to the Texas Senate on November 10th of 2014. The proposed bill was created in order to limit those “payday” lending

South Dakota use to have very strict laws on the amount a lender could charge a borrower. Interest rate charges were highly regulated and because of this banks

The real estate industry is thriving with approximately sixty-eight percent of all Americans being homeowners. With low interest rates, 1st time home buyer down payment assistance programs, and government funded educational opportunities (i.e. the Home Ownership Center of Greater Cincinnati), the real estate and mortgage lending industries will continue to flourish. However, there are some unethical lending practices that are threatening the housing industry as a whole.

With the obvious incentives of complying with the CRA, local bankers began to tap into markets that would have been considered prior to CRA enforcement in the late 70’s. These lower-income areas proved fiscally viable, and began to draw the attention of financial institutions other than depository banks. These investment banks were involved in speculative investment and resale of mortgages and were not regulated under the terms of the CRA. Non-CRA covered lending institutions have played an increasingly large role in lending to low-income neighborhoods since the law was enacted.

As competition increased between savings and loans, banks, and credit unions, banks were eager to attract loan applicants in order to increase revenue and compete with other financial institutions. Jack S. Light, the author of Increasing Competition between Financial Institutions, said in his book that “commercial banks are diversifying their assets toward higher percentages of mortgages and consumer loans, and thrift institutions are seeking authority to diversify their loan structures. Moreover, mounting pressures are working toward, and have partially succeeded in, changing the authority of thrifts to include third-party payment accounts similar to commercial bank demand deposits.” (Light) Because of this eagerness to bring in new clients, they were willing to give out loans without checking into the financial stability of the borrower or the business that was requesting the loan. Unfortunately since the banks didn 't look into their clients’ financials adequately, many clients defaulted on their loans because they could not afford the payments, especially when balloon payments started.

A.B. 163 was presented by Assemblyman Edgar Flores. The purpose of this bill was to add further regulations on certain loan services in order to verify the customer’s ability to pay back those loans. Assemblyman Flores used examples to illustrate the need for this bill. For example, he stated that if a person took out a high interest deferred deposit loan and did not pay on the due date (i.e. day 35), there should be a default on those loans on day 36. The problem with current statute is that several companies will use a loophole within existing statute that gives them the ability to trigger that default date whenever they choose. Often times, they will let the loan continue until the contract's expiration date. When this happens, the loan interest continues and carries on for the rest of the

During this time period, homeownership typically required a 20 percent down payment (Melicher & Norton, 2014, 168). Lending institutions were very careful about whom they lent money to, and credit standards were high (Melicher & Norton, 2014, 168). Melicher & Norton (2014) called this the “save now, spend later” philosophy, and it would change in the coming years (p. 168).

On May 19, 2015, a hearing in the 114th congress was held. The Subcommittee on Economic Growth, Tax and Capital Access (of the Committee on Small Business) entitled ‘Improving Capital Access Programs within the SBA’, discussed ways to give more money to its veteran entrepreneurs. This would be done by changing the loan process within the Small Business Administration. The House report gives the following testimony from, “a lender authorized to operate in the Loan Program that the initiative would help SBA-guaranteed lenders get needed capital to veterans,” (p.4 HR). This is where the idea was planted and then it was assigned by the speaker, Mr. John Boehner, to the House Committee on Small Business.

FiSCA’s response to the proposed ban on payday lending should support three different goals that keep the political environment in mind: maintaining payday lending viability in Ohio, preventing future industry regulations, and building FiSCA

Financial regulators and politically motivated critics of bad credit loans have proposed many regulations that target payday-style loans such as requiring greater due diligence in processing the loans, limiting interest rates and simply banning the loans in certain states. However, the government's own Federal Deposit Insurance Corporation released a national study in October of 2014 that found about 34 million households don't participate in the banking system. These people depend on alternative financial resources like check cashing companies, bad credit loans and payday and title loan

Predatory lenders are organizations, which offer loans with high interest rates to those who are in need of fast money, usually for an emergency. Originally, predatory lenders operated as loan sharks, but now they operate as payday loan offices, and car tile loaners, having found a niche market, of people who are both desperate for quick cash and have stable paying jobs, and are willing to accept paying flat fees subtracted from their loan total in exchange for quick cash. Loans such as Payday Loans and Car title loans operate by preying on those who have nowhere else to go. Predatory lending practices have had a predominately negative effect on lower income communities, forcing many families living in these communities to go into deeper

Other ethical concerns are the ridiculously high annual percentage rate (APR) charged on outstanding amounts, creating a new loan to avoid the appearance of “rolling over” debt, and “touch-and-go” practices that pay-off the old loan with a new loan ballooned to cover the old debt. Many customers find themselves paying towards the interest and not making a dent in the principal amount (Thompson, et. al, 2012).