Telling Half the Story
An article in the Bay St. Banner takes a page torn straight from the consumer “advocate” playbook: telling half of the story.
The article details various legislative efforts around the country to implement restrictive, anti-consumer interest-rate caps, including a recent bill in Illinois. The piece is littered with the same misrepresentations and generalizations, the same coalition of groups coming together to support rate caps, and the same statistics they claim show how terrible small dollar loans can be for consumers.
The author lazily classifies all consumer lenders as predatory, and doubles down with worn, old, and baseless claims that financial institutions, such as banks, will step in with expanded small dollar lending products, or that consumers will borrow from friends, churches or other local organizations. All the while, the reporter fails to acknowledge that there is a reliable and responsible lending option for consumers.
Traditional installment loans have for more than a century helped all consumers, of all races, backgrounds and occupations, to make ends meet or to finance repairs and purchases. Installment loans have equal, fully amortized payments with a defined payoff date, usually in 12 – 18 months. Lenders determine a borrower’s ability to repay, and repayment history is reported to credit bureaus. There are never any balloon payments and consumers can expect a friendly, welcoming atmosphere at any branch.
For small-dollar loans, the quality, affordability, and soundness of the loan is best judged by its length and monthly amount owed, and not its interest rate. APRs are a function of time and the loan term, rather than a measure of the dollar cost of a loan.
For example, say you borrow $100 today and are charged $1 in interest:
- If you pay back the loan in one year, the APR is 1%
- If you pay back the loan in one month, the APR is 12%
- If you pay back the loan tomorrow, the APR is 365%
- If you pay back the loan in an hour, the APR is 8760%
Same dollar in interest, vastly different APRs. Traditional installment lenders work with the customer so they understand the terms, are not borrowing more than they need or can financially afford.
AFSA continues to work to educate journalists, stakeholders and the American consumer about the value that traditional installment loans can play and ensure that reporters especially, tell their readers the whole story. After all, everyone loves a good, old fashioned American success story – they’re often funded by traditional installment loans.
March 12th, 2021 by Dan Bucherer