Payday loan companies face new postal competition
When using payday loan services, the applicant must have an active bank account. For those millions of people who don’t use banks to hold their money, it would be difficult to get a quick payday loan. A storefront service will expect a signed check to be held for payment on the due date. An online service uses wire transfers and debits to process its loans. How will someone without a bank account get quick cash? The post offices believe that they have an answer for customers of the service who use short-term loans or do not have a bank account.
The USPS will offer “Postal Loans” to help people save money on fees. That’s not to say there aren’t fees involved, but the Post Office believes it would be better than what people pay companies for payday loans and cashier’s checks. This is another option for those who need a cash boost.
At the moment, people who don’t have a bank account but work for a living have to cash their checks somewhere. Cash checking services are available for a fee, and some places even offer a savings account so you can store cash instead of carrying it around. This is a safe way to protect your earnings, but nothing is free. The USPS would like to offer a prepaid card to consumers whose paychecks are directly deposited onto that card. Postal loan will be limited to half of the amount deposited on this card. What about fees? How will the USPS be paid for their service? Payday loan lenders communicate their fees up front. The service has been around long enough that most people have at least a basic understanding of how it all works.
Any person who takes out a postal loan will have to pay 5% until that loan is paid off. It sounds very reasonable and the idea of the loan would help many people save a lot of money on financial expenses. The problem is the inability to repay the loan. Payday lenders fight this battle every day. There is no direct access to a person’s salary, only the ability to collect by debiting their account. If the money isn’t in a bank account, the direct lender will have to keep trying, add more fees, and work out something with the borrower that both parties can agree on. The USPS will have access to an individual’s full salary. If the loan is not repaid according to the contract, the USPS can automatically withhold the payment from the direct deposit paycheck and put whatever is left of their paycheck on the card. Borrowers will pay no matter what with no chance of working anything out.
Banks and credit unions also offer similar services. Their rates are lower than typical direct lenders and people tend to trust the institutions more. The idea of alternative options is wonderful. Let the people decide. It is interesting to note that three major banks have already decided to withdraw from their offers of quick loans. The attendant hassles from regulatory issues to customer complaints and payment issues are more than they bargained for. It seems people are still having trouble and with the first access to collectable payday loans, borrowers are still having trouble. Consumers lose control of their wages. When the borrower uses a payday loan servicethey retain control with a higher finance charge.
Money management is ultimately up to each borrower. They will need to use a service that will work best for them. The postal loan, once it becomes active, will help those customers without a bank account. The actual mail order loan is yet to be determined as far as the borrowers will review the services.
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