Magazine article American Banker

Don't Lump in Installment Loans with Payday

Magazine article American Banker

Don't Lump in Installment Loans with Payday

Article excerpt

Byline: Bill Himpler

In response to a recent op-ed on this blog defending payday loans, Rep. Linda Sanchez, D-Calif., countered that payday lenders create "debt traps" by forcing borrowers to take out additional loans to repay escalating interest on their original loan. I agree that this is a terrible cycle of debt for those who can least afford it.

However, Sanchez is inaccurate and misinformed when she lumps the traditional installment loan industry together with the payday loan industry. There are significant differences.

This mischaracterization is the result of advocates for the payday loan industry attempting to blur the clear lines of distinction between traditional installment loans, which make affordable credit accessible to millions of Americans, and predatory, cycle-of-debt loans like payday.

It is essential that our lawmakers are able to understand the differences between traditional installment lending and payday loans that are hurting hardworking families every day.

The traditional installment loan industry is more than 100 years old and provides access to credit for consumers to pay for necessary and often unexpected expenses. Installment loans have payments and terms based on the borrower's ability to repay. For example, traditional installment loans, such as those made by member companies of the American Financial Services Association, are structured with built-in consumer protections and safeguards against default.

For example, a borrower's ability to repay a loan is worked out in advance and regular, equal-sized payments are scheduled, giving the borrower agreed-upon affordable monthly payments and a clear pathway out of debt. …

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