Reading the words of Debbie Matz, chairman of the National Credit Union Administration, was like a cool shower after a hot hike in the desert. I am in complete agreement with her decision to authorize credit unions to design short-term loans for their customers. These loans will be similar to online payday loans and carry higher interest rates than traditional personal loans.
The more competition there is for short-term loans the better. It does not matter if the loans offered are online payday loans, cash advances, or whatever, the tighter the competition the better. Additional regulation on online payday loans kills innovation, while increased competition creates a healthier short-term credit environment for everyone.
Taking the industry of online payday loans as an example, the more companies that are offering cash payday loans the better it will be for consumers of these types of loans. For example, if one company is offering $50 fees, while a second place offering online payday loans has fees that are $45, where do you think most consumers will go? That’s right, the consumers of these loans will go to the place that is five dollars less, assuming, of course all else is equal.
Matz is correct to say, “predatory lending in any form is wrong.” This is the attitude that everyone in the industry of online payday loans must have. When people come for online payday loans, they are looking for help. They deserve to be treated with respect and not be taken advantage of.
So, it is great that credit unions will be offering loans similar to online payday loans. This infusion of new credit options will free up the short-term credit market making life better for all to include the consumers and the lenders of online payday loans. Yes, kudos to Matz for her editorial piece and her support of short-term credit.
Original Article: Alternatives to high-interest payday loans
