As more and more regulations are passed to curb the predatory practices of payday lenders, some payday lenders are presenting themselves as installment lenders in a concerted effort to circumvent and evade laws, both national and local. Lawmakers should take note.
In response to lawsuits and local ordinances, many payday lenders have altered their business models or converted brick and mortar shops to online and mobile-friendly platforms in the hopes of avoiding legal action. They are even finding refuge on Indian reservations, where many federal laws cannot touch them.
What’s worse is that these lenders are pretending to offer the kind of products that traditional installment lenders have been offering for generations: quick access to affordable credit to pay for emergency expenses, transparent interest rates that don’t put borrowers into a debt trap, and predictable repayment schedules. Payday lenders are trying to fool American consumers and drag down an established industry in the process.
Traditional installment lenders have built a business based on trust with their consumers. Traditional installment loans meet the needs of many Americans by providing them access to affordable credit to finance unforeseen expenses such as car or home repairs or medical expenses. Traditional installment loans are a key feature of our financial system that must be protected and encouraged to grow.
Payday lenders realize they are operating in the gray areas of the economy. The regulations being passed today are rightfully trying to protect American consumers from predatory and unscrupulous lenders. But it’s also important for regulators and lawmakers to distinguish between responsible and predatory lenders. Payday lenders know that traditional installment lending is a solid and trusted industry. That’s why they are trying to present themselves as installment lenders. They know that hiding out in the installment loan industry and blurring the line between these two types of lenders will make it harder for lawmakers to crack down on them. Lawmakers must distinguish between the two and pass payday lending-specific laws instead of laws that hurt the entire financial industry and prevent millions of Americans from accessing responsible credit.
If payday lenders are permitted to simply “call” themselves installment lenders without doing the consumer-focused work that traditional installment loans are known for, millions of Americans will be deprived of access to safe, affordable credit.