Judi Strong used her own savings to start her small business in Lexington, Kentucky, 15 years ago. Now she says federal regulators are about to close her down.
At first it sounds like a horror story about big, callous government. But Strong doesn’t run a bakery or a corner store. She’s the owner of Cash in a Dash, a payday loan company with five offices in the Lexington area.
“I just feel like it’s a needed business,” Strong said in an interview. Many of her customers are regulars, she said, who use small loans to tide them over between paychecks the way other people use credit cards.
But her customers pay interest rates many times higher than credit cards, even the most expensive ones. If you’re short of money, Cash in a Dash will lend you $100 for a fee of $15 until your next paycheck comes. Usually that’s two weeks, so the annualized interest rate comes to about 390 percent.
The federal regulation would require Strong to look into her customers’ ability to repay their loans. Borrowers would also get a 60-day cooling off period after taking out three loans in a row.
“I couldn’t stay open” with those rules, Strong said. Checking people’s credit isn’t a viable option for the small amounts she lends, she said. And “a 60-day cooling off period would be devastating.”
Strong is a member of the payday loan industry group Community Financial Services Association of America. The lobby group is making a full-court press to soften the proposed payday lender rules, which were floated by the U.S. Consumer Financial Protection Bureau in March.
Most lenders like Strong would close their doors if the consumer bureau’s proposals took effect in their current form, Dennis Shaul, head of the industry group, said in a statement. He called the ideas “catastrophic to small businesses and the customers they serve.”
But can payday lenders successfully wrap themselves in the small-business flag? Businesses that depend on repeat business for what is supposed to be an emergency loan don’t generate much sympathy. If your payday loan business has to shut down rather than give borrowers a cooling-off period after three consecutive loans, maybe it relies too heavily on people who are hooked on debt.
The CFPB proposals will very likely be modified before they are cemented into rules, and payday lenders may find they can coexist with them after all. But what would happen to borrowers in Lexington if Cash in a Dash closed its doors?
They might make their way to Eagle Financial Services, a finance company that advertises “Personal Loans for Bad Credit.”
“We would never claim that we are the cheapest option in terms of borrowing money,” Eagle says on its website. However, it is bound by state limits on interest rates — which don’t apply to fees charged by payday lenders. In Kentucky, usury law sets the maximum interest rate at 3 percent per month for loans of $3,000 or less.
Or borrowers might find their way to Greater Kentucky Credit Union in Lexington. The nonprofit lender offers credit rebuilder loans that you pay back in monthly installments, representatives said. There’s also a Visa for people with spotty credit, with low limits and interest rates no higher than 18.99 percent. The loans can come with financial counseling to help people budget their expenses and avoid borrowing, a representative said. Membership in the community credit union is open to Lexington residents and people in neighboring counties.
Payday lenders are quick and convenient, but there are cheaper, safer alternatives.