Welcome to the Responsible Lending Center

education, consumer protection, financial reform

The Responsible Lending Center is an independent consumer advocacy group which rallies for freedom of product choice, consumer protection and consumer responsibility.  There are a number of organizations that are created for the primary or sole purpose of protecting the average consumer against for-profit businesses in the finance industry.  The Responsible Lending Center promotes the consumer’s right to choose in situations in which full disclosure is encouraged and provided by the lender.  We’ll highlight payday loans, the controversy, pros, cons and proposals to address the most common concerns.

In several other countries lawmakers have worked with the lending industry in order to promote industry reform, consumer protection, validation of products, in addition to ensuring that profitability is still attainable. We challenge regulators to take into account all of the above conditions and work in tandem with the lending industry to produce results that will be favorable for all parties.

Most common payday loan industry objections and our suggested reform

 

 

1. Complaint- Payday lenders have Annual Percentage Rates in excess of 400%.

Solution- The APR associated with payday lending is one of the greatest complaints from political figures and consumer advocates. Although the APR will still exist, it can become irrelevant by capping the fees on all short-term loans.  Capped fees will protect the consumer in addition to ensuring the lender is able to make a profit. Please note that a 400% APR would require 26 consecutive bi-weekly loans in order to be valid.

2. Complaint- Borrowers get trapped into a cycle of debt.

Solution- There are a number of ways to allow customers to more easily pay off their loans. One option would be to impose a “4-pay and out” in which the consumer has an option to make four bi-weekly payments that will reduce the principle each payment. Another option is to mimic the new Illinois law which will put customers on an 8-pay amortized loan and the customer has the opportunity to pay their principle down significantly.

3. Complaint- Payday loan customers are uneducated.

Solution- Displaying financial literacy material and/or offering classes can be made mandatory for all lenders applying for licensure in their state.  Consumers will then have access to information on all of their credit options. In addition to making material available, there could also be a brief state or federally approved payday loan education video that all customers would be required to watch and sign-off on.

4. Complaint- Payday loan customers don’t understand the terms of their loans.

Solution- Consider printing payment schedules or amortization schedules with all contracts.

5. Complaint- Payday lenders target the military.

Solution- By law, no lender can create a loan contract to any member of the military for more than 36% annual percentage rate.

6. Complaint- Payday lenders target the poor.

Solution- Create a state or federal minimum income conditions for loan requirements.