online cash advance
Much has been said of regulating online cash advances so that consumers can easily see and understand what they’re signing up for. However, these regulations are already being followed. It is as if impressionable government regulators take the CRL’s word without proof. If they looked at the industry, they’d see that consumer protections are already in place. Stoianovici and Maloney find the argument thatonline cash advance terms are difficult to understand without merit; the loans are, in fact, very simple. Costs are listed up front, and if the borrower keeps up his end of the bargain to repay when the loan is due (typically after two weeks), all they repay is the principal balance and the typical $15 per $100 loaned. That’s it. If a “cycle of debt” culture were the norm, how could the supposedly resulting bankruptcies lead to online cash advances being a profitable business?
As borrowers enter into online cash advance contracts voluntarily and with full knowledge of how the loans work, it seems ridiculous to base an anti-loan argument on the grounds that people are victimized against their will or beyond their control. Paying interest and principal is agreed upon, and online cash advanceemployees are more than willing to explain anything customers do not understand. Stoianovici, Maloney and others make a point of stating that people are not being forced into bankruptcy or any kind of financial distress by the loan product. If they are dishonest in their intentions of repaying a loan when it comes due, that is not the lender’s fault.
Profit and expense – too high?
But critics continue to make the bankruptcy connection. Regarding profitability, most critics claim that the faxless online cash advance business is parasitic, that it depends upon hooking in the same “weak-willed” borrowers again and again. However, this is simply not the case. In multiple studies, such as the one by Flannery and Samolyk, online cash advance store profitability depends on total volume, just as any other type of business would. Frequent borrowers are not a significant income source, which in turn suggests that rollovers are not as common as critics insist.
Regarding whether online cash advances are too expensive, the authors point to studies like those by Huckstep. The loans are not too expensive. The high number of stores and significant operating costs, says Huckstep, are
relative to other lenders… online cash advances are a product chosen mostly for convenience. Because of this, payday lenders compete in a local area and have a high density of stores, and keep those stores open beyond normal business hours (p. 210-1).
As demand for the product increases, the need to increase the number of stores and workers to meet the demand increases. Stoianovici and Maloney find this to be consistent with collected data. For instance, Ace Cash Express “opened a store in Augusta, GA less than 1.8 miles away from another of its stores.” This was in response to the pre-ban need. Yet Georgia banned the loans anyway, despite the fact that doing so harms consumers. And if that doesn’t convince you, here’s another example for good measure.
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online cash advance