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The Problem With Payday Lending

The Publisher

I actively promote that I want advertisers on my blog. “Advertise Here,” is the common call publishers make to advertisers. We’ve done our homework to ensure that our price and location align so that advertisers may have a difficult time walking away from our advertising opportunity. But what happens when you receive an offer that is a match made in heaven, on the surface, but an actual minefield underneath?
 
Reconciling With the Advertiser
Finance and Marketing will gladly accept any advertiser whose product or service is related to the site’s topics and meets the needs and wants of readers. Personally, I am a consumer advocate and very big on integrity so, ads must also align with my personal beliefs if I am to sleep at night. Really, I don’t ask for much.

So what happens when you receive an offer, your very first, and it is to advertise for a Payday Lender?


SEE: Navigating the Banking Environment

Hmm, I have a conscious and regulatory experience so, my initial excitement at discovering an offer immediately dissipated into burdensome displeasure: from the tone of the request, I am certain that the individual sending this request believes in the product. Ugh. 
  
The Problem
Ask any issuer of payday loans, and they will tell you they are offering the unbanked a fantastic product. What they fail to see is their own used car salesman approach as they sell their product at interest rates that are hundreds of basis points beyond reasonable.

Good credit will get you a rate of approximately 0% to 15% short-term and 4% to 6% long-term. An unbanked person with poor or no credit may go to the neighborhood payday lender and spend upward of 250% for a loan that is due in full at the time of the consumer’s next payday.


SEE: Cash. No Questions Asked.

The Solution
In 2008, the FDIC launched a pilot program with 28 volunteer banks to offer loans between $1,000 and $2,500 for a period of 12 months to 18 months to this segment of the population. The APY, including origination fees, averaged 36%. This provides plenty of return to the banks for the increased risk associated with the consumers’ lower credit, and the terms cost the consumers less than a payday loan while providing them sufficient time to repay the loan. This alternative also provides the consumer the opportunity to build good credit.

Consumer Education
Most consumers that use Payday Lending services use it because they do not know of any viable alternative. When you know better, you tend to do better. For this reason, many volunteer banks also required that the consumers become financially literate as a condition of financing - so that they could continue to make better financial choices.

Consumer education is not contingent upon getting a small dollar loan. As always, the FDIC’s Money Smart program is available online, for FREE, with programs tailored to teenagers and adults so that more individuals can bypass the community loan shark.


SEE: The FDIC’s Small-Dollar Loan Pilot Program

Aligning Finance, Marketing, and Moral Obligation
Back to the original dilemma: I asked for it by stating, "Advertise Here," so can beggars be choosers? Although the request for advertisement aligns with the subject heading of my site, I could not possibly advertise a product that I do not believe is in the best interest of anyone other than the advertiser. So, yes, beggars can be choosers.

Some may say that a good night's sleep is overrated - get your money - however, my moral compass simply does not permit complete self-absorption. Overrated or not, I will be sleeping soundly, every night!

About the Author

Maisha Smart, MBA founded Finance and Marketing to help small businesses excel, by bridging the gap between finance and marketing processes. Some of her favorite activities include fine arts, a good debate, and social engagement.

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