In this 21st century the money lending business has become more flexible and versatile. However, the scene was not like this before. It has undergone a lot of transformation since the ancient times when money lending was a business for a typical class of people.
Take a look into the money lending history of the ancient Greece, Rome and other parts of the world even. You will see how it has changed from the Dark and Middle Agesto the Renaissance and Reformation period that is typical to the 19thand 20th centuries.
- Back then, moneylending business was condemned morally and was restrained legally.
- Now, though money lending is still regulated by several laws and clauses, it is a flourishing business.
A deeper look into the matter will make things clear to you.
The moral antagonism and usury law
When it comes to money lending there has been a lot of different types of money lenders are victimized, especially due to the moral antagonism related to money and money lending. People providing payday loans seem to be victimized the most. As far as the features of payday loans are concerned it is seen that:
- It is considered to be the most popular and beneficial service
- There is a great demand for such types of loans.
However, these types of loans are still victimized, if not ostracized and relegated to a specific fringe of the society and are at the edge of the law. There are several reasons for it such as:
- These loans come with a very high carry annualized interest rates sometimes as high as 1000% and
- These loans are offered typically for a very short term requiring to be paid back at the next pay day.
Despite these facts, research found that these special money lenders have found different ways and strategies just like any traditional banks and different other online money lenders such as libertylending and others to circumvent the usury laws of the state and flourish. It is seen that:
- An estimated 25,000 payday stores are there across America
- This is a $6 billion dollar industry
- It serves more than 15 million people each month.
However, the bank regulators have sternlyconstrained the capability of the community banks to provide payday loans. Not only that, it has even limited its working ability with the payday loan offices.
What is even more surprising is that there are more than 13 states that have already banned them totally and the Congress is presently contemplating on finding ways to successfully ban all payday loans completely.
All these are done in spite of the fact that the demand for payday loans is soaring high and it is an established truth that such loans genuinely serve the economic need of the people. These loans are in fact a real value and real need for all the low income households.
Few statistical facts
The scenario of the modern payday money lending industry can be best established with a few statistical facts.
If you consider the Wall Street Journal reports you will see that:
- Georgia has already outlawed payday loans way back in 2004.
- As a result, thousands of workers since then have taken to traveling across the border to Florida, Tennessee, and South Carolina to find payday stores.
This shows how the ban of payday loans has affected the lives of the people, especially those low income groups. It has inevitably increased the inconvenience for the Georgia consumers thereby making the consumer credit costs higher.
If you consider another article published in the LA Weeklytitled “Shylock 2000”you will come to know several other facts such as:
- There is a high demand for payday loans
- It provides a lot of economic value to a large number of borrowersand
- These loans are offered at the mutual consent of the borrowers and lenders to attain mutual benefits.
However, the story includes several horrific stories of lots of borrowers going bankrupt. The article however concludes saying that such forms of usury can be perfectly legal even after 400 years after Shakespeare created the most famous and rapacious lender Shylock. This is the most astonishing part of the article.
The growth of the industry
Another astonishing feature and fact about payday loans or such types of usury is that even after these types of money lenders have been providing funds and business capital now for centuries to billions of people willing on take it on specific terms that are mutually agreed upon, the image of these persistent money lenders have not improved and seems to be confined to the image of the avaricious Shylock.
The sub-prime mortgage money lenders however, have found a better ground and way.
- They providemortgages that are specially designed for the lowincome borrowers enabling them to buy homes.
- However, the default rate among such borrowers was found to be extremely high and these loans are typically considered as highrisk transactions.
- As a result these loans are sold at a consistently high rate of interest.
Industry experts say that it is the money lenders who are to be blamed for such a situation. However, there is another side of the story that indicates and substantiates the tremendous growth in this industry.
It is said that it is due to the direct impact of the government policy.
- The US government since the 1930shas encouraged ownership of homesamong all Americans. However, they emphasized on the people who fall within the lower income brackets.
- At this point and to its effect, the government designed the Federal Home Loan Banks. These banks though are not exempted from the state and local income tax rules provide higher incentives for the smaller banks to offer mortgage loans to the low income Americans.
In order to ensure that the Congress passed the Community Reinvestment Act. According to this Act, banks need to invest in their local communities. Accordingly the government created Fannie Mae and Freddie Mac. These mandates banks to issue mortgage loans to the low income people.
