In these times, when cost of living is surging and incomes are not improving, the working poor are relying more on payday lending than ever before. The first payday store was established in Cleveland, Tennessee in 1993. By 2006, the business had become a 40-billion dollar-a-year industry. A recent addition to this segment of the lending trade are Indian tribal loans.
This new marriage of payday loans and Indian tribal identity has been the subject of much debate and criticism. Even though Native Americans are themselves are often harmed by the downside of relying on this type of high interest loan, some Indian tribes have embraced this business as a source of income.
Basically such a loan is offered in small amounts, for a short term with high interest. Their short term nature increases chances of late charges and rollover for the creditor. From one borrower such creditors can get a continuing stream of income. Typically, about three hundred dollars are loaned for a fee. The typical fees range from 15 to 20 per cent of the amount extended. In exchange, borrowers authorize account withdrawal or provide a postdated check.
Normally for terms under a month, interest charged on such loans is amounts to a yearly 300 to 500 percentage rate. To avoid nasty repercussions, quick repayment is key. Any failure to pay off the amount in full leads to additional late fees and the potential for continued renewal. An onerous burden already cash strapped borrows can ill afford.
These high interest rates deliver a business model that encourages repeat borrowings. The result is an expensive form of consumer credit for customers who can ill afford it. This financing technique has a special market niche. It lends to customers banks do not serve. The basic market for this type of credit is the estimated almost 40 million segment of the adult population, representing 25 percent of American households being unbanked or underbanked. This includes over half of the African-American population and over 40 percent of the Hispanic and Native American population.
As the California school district Capital Appreciation Bond scandal reveals high interest financing schemes are a mainstream mechanism. The feature such bonds and payday loans share is a potential for an exorbitant bill. Hence a school district is due to cough up over 55 million on a 4 million borrowing and another almost a billion dollars on an amount of almost a hundred million. Consider over 200 districts have to pay these bills and California is only thirty percent of the market.
It has been claimed that the most unscrupulous lenders seek the cover of tribal sovereignty. For them this is the equivalent of an off shore residency, which others have also secured. Yet others have sought the internet as a mechanism to escape state control and regulation. It is in the tribal interest to protect their people and their independence. They need to ensure those who use their territory to conduct business outside their territory do not charge rates excessively exculpatory rates.
People who need a stop gap solution and have few alternatives will pay despite the cost. Indian tribal loans, check cashing operators and subprime credit cards are the currency that maintains the liquidity of this cash strapped customer base. The customer base in this time of limited jobs and low income has no sign of diminishing. Consumers are advised to protect themselves by reading the terms of the loan. They should not make a commitment they cannot afford.
This new marriage of payday loans and Indian tribal identity has been the subject of much debate and criticism. Even though Native Americans are themselves are often harmed by the downside of relying on this type of high interest loan, some Indian tribes have embraced this business as a source of income.
Basically such a loan is offered in small amounts, for a short term with high interest. Their short term nature increases chances of late charges and rollover for the creditor. From one borrower such creditors can get a continuing stream of income. Typically, about three hundred dollars are loaned for a fee. The typical fees range from 15 to 20 per cent of the amount extended. In exchange, borrowers authorize account withdrawal or provide a postdated check.
Normally for terms under a month, interest charged on such loans is amounts to a yearly 300 to 500 percentage rate. To avoid nasty repercussions, quick repayment is key. Any failure to pay off the amount in full leads to additional late fees and the potential for continued renewal. An onerous burden already cash strapped borrows can ill afford.
These high interest rates deliver a business model that encourages repeat borrowings. The result is an expensive form of consumer credit for customers who can ill afford it. This financing technique has a special market niche. It lends to customers banks do not serve. The basic market for this type of credit is the estimated almost 40 million segment of the adult population, representing 25 percent of American households being unbanked or underbanked. This includes over half of the African-American population and over 40 percent of the Hispanic and Native American population.
As the California school district Capital Appreciation Bond scandal reveals high interest financing schemes are a mainstream mechanism. The feature such bonds and payday loans share is a potential for an exorbitant bill. Hence a school district is due to cough up over 55 million on a 4 million borrowing and another almost a billion dollars on an amount of almost a hundred million. Consider over 200 districts have to pay these bills and California is only thirty percent of the market.
It has been claimed that the most unscrupulous lenders seek the cover of tribal sovereignty. For them this is the equivalent of an off shore residency, which others have also secured. Yet others have sought the internet as a mechanism to escape state control and regulation. It is in the tribal interest to protect their people and their independence. They need to ensure those who use their territory to conduct business outside their territory do not charge rates excessively exculpatory rates.
People who need a stop gap solution and have few alternatives will pay despite the cost. Indian tribal loans, check cashing operators and subprime credit cards are the currency that maintains the liquidity of this cash strapped customer base. The customer base in this time of limited jobs and low income has no sign of diminishing. Consumers are advised to protect themselves by reading the terms of the loan. They should not make a commitment they cannot afford.
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