Sorry, I could not read the content fromt this page.Wednesday, November 10, 2010
Bank-Based Small-Dollar Loans: An Alternative to Payday Loans
Payday loans — your neighborhood loan shark in a retail box — have emerged as a hugely profitable underbelly to the banking business. Short-term loans with off-the-scale annual percentage rates that can exceed 500 percent are a growth industry in tough economic times; the industry raked in 42 billion dollars last year. Gary Rivlin, author of From Pawnshops to Poverty, Inc.: How the Working Poor Became Big Business, reports that the United States now supports more payday loan outlets than McDonald’s and Burger Kings combined. The FDIC would like to counter the trend with legitimate loan products designed to serve the “underbanked” lower income sector.
A recently concluded Small-Dollar Loan Pilot Program conducted by the FDIC featured loans that offered terms designed to beat those offered by payday sharks. Terms looked like this, according to the FDIC website:
Low or none; origination and other upfront fees plus interest charged equate to APR of 36 percent or lessStreamlined with proof of identity, address, and income, and a credit report to determine loan amount and repayment ability; loan decision within 24 hoursMandatory savings and financial educationThe 2-year pilot program involving 28 banks expired in 2009. The trick now is to find a bank that will make a small-dollar loan based on this template. Big banks like Wells Fargo have not signed on to the program, preferring to stick with more lucrative — and less consumer-friendly — cash advance programs with APRs up to 120 percent.
Most small-dollar loans are for amounts in the range of $500 to $1,000 for periods of one year. Under the pilot program, banks used a small percentage of the loan proceeds to start a mandatory savings account that could not be accessed until the loan was nearly paid off. The idea behind this practice was to help the borrower start an emergency savings account to reduce the need for future loans.
To find a small-dollar bank lender in your area, check your local listings for small regional or community banks, ask for the loan desk, and request the loan profile using the information in the chart above. But if you can’t find a bank in your area that offers a small-dollar loan program, don’t be too surprised. Bank-originated small-dollar loans may be an idea whose time has not yet come.
FDIC staffers point with pride to a regional consortium of banks in Baltimore that joined forces with a nonprofit, Neighborhood Housing Services of Baltimore (NHS), to allow loan origination to be handled by the nonprofit instead of the banks.
“The interesting thing about this particular program is that it is a loan pool so several different institutions — credit unions, big banks, and small area banks are all partners in this program,” said FDIC staffer Joan Lok.
Eligibility for the Borrow and Save Program requires an income at or below 80 percent of the Area Median Income (AMI) and a pay stub. Other restrictions apply. Charles Martin, Regional CRA (Community Reinvestment Act) Manager at one of the participating banks, M&T Bank, calls the program “a successful pilot project” but says that in order for the program to catch on elsewhere, “It needs an experienced nonprofit partner and a wise regulatory partner.” He said the fact that NHS was already experienced at making loans was crucial to the success of the program.
Credit scores were not considered in the pilot program, but when asked if that would continue to be the case, Mr. Martin offered, “We’re looking at that.” In lieu of a reliance on credit scores the Baltimore model required borrowers to take a financial literacy class — a feature of the program considered essential by Mr. Martin.
Art Torres of Neighborhood Housing Services of Baltimore, said, “What we are really looking at is the payment histories, not the credit score per se. When we looked at clients who had run into problems, and looked at their credit scores, we found that the credit scores were not predictive of their performance.”
According to Luke Reynolds of the FDIC, the agency does not know how many banks have begun to offer the program. He pointed out that while the pilot program involved 28 banks, other banks offered similar programs under their own initiative. Of those that did participate in the pilot, “Overwhelmingly, the institutions said they were going to continue offering affordable small-dollar loans,” said Mr. Reynolds.
If you can’t find a bank that offers small-dollar loans, you might try your local credit union. The issue here is to find one you are eligible to join. One credit union, Diversified Credit Union of Minneapolis, Minnesota, offers a personal loan program that will make a one-year $1,000 loan with a top interest rate of 18 percent upon opening a new account with a savings deposit of $10 and no checking account requirement. “Due to state regulations, we can’t do anything over 18 percent,” said Dave Emmeck, a loan manager at Diversified, “most of these loans are from the 9.9 to the 12.9 percent range.”
Would-be borrowers must possess a credit score of 525 — admittedly low, but still better than some customers might have. And some young people have no credit score at all. According to Emmeck, people in a no- or low-score predicament can still get a loan if they can find a co-signer.
Clearly, the FDIC pilot program was a step in the right direction and was by all observable measures a successful program, but whether or not widespread adoption of the model will follow is open to question.
Torres said, “For it to catch on the regulators are going to have to give CRA credit for these programs. Otherwise, the banks can make more money elsewhere.”
The Community Reinvestment Act was designed to encourage banks to meet the needs of all segments of their communities, particularly low-income customers. It is hard to see, for example, how Wells Fargo’s cash advance program, with an APR of 120 percent, boosts its CRA standing.
FDIC Chair Sheila Bair is on record in support of the small-dollar loan program, saying, "It is my hope that, over the next few years, responsibly priced small-dollar loans will become a staple offering among our nation's banks."
Hey, Wells Fargo and Bank of America, are you guys listening?
This is a guest post by Steve Klingaman, a nonprofit development consultant and nonfiction writer living in Minneapolis. Read more by Steve:
Tuesday, November 9, 2010
Black Friday Deals: A Sneak Peek
Look for a sneak peek at some hot Black Friday Deals? Several stores have already released their discount lists. We’ve got the round-up right here.
Kohls is planning to open at 3am on Friday November 26, and at 6am on Saturday November 27. They will remain open until midnight both days.
Some highlights of the sale:
50% off all toys including: Fisher Price, Playskool, Littlest Pet Shop, Barbie, Hot Wheels, Tonka, Crayola and more.1/4 ct. diamond solitaire earrings set in 14k gold, $99 (Regularly $250)55% - 60% off all jewelry40% - 60% off watches40% - 60% off slippers, scarves and gloves50% - 60% off ladies lounge wear, sleepwear and intimate apparel40% 0 60% off razors and groomers for meFor the full scan of the Kohl's black Friday flier you can click here.
Lowes has released some of it's loss leaders for Black Friday. They will be opening their doors at 6am on Friday November 26.
Highlights include:
100 count clear mini Christmas lights for 99¢6-1/2' 400-Light Clear Pre-Lit Artificial Christmas Tree $383-Quart Rival Stainless Steel Slow Cooker $9.99Belgian Waffle Iron $9.99Lidded Crates Buy One Get One FreeWerner 6' Aluminum Stepladder $19Tons of tools from $9.99You can view a scan of Lowe's Black Friday flier here.
Ace Hardware will open it's doors at on 7am Friday November 26. The following deals are available then:
16 gal. Wet / Dry Shop Vac for $29.99 (after a $10 mail-in rebate)200 Mini Christmas Lights for $1.99A Two-pack of 4' Lighted Porch trees for $19.99 (Clear or multi-colored)A coupon for 50% off one item under $20A $10 a purchase of $50 or more coupon. (Check the circular once it's released to get the coupon, or ask for it in-store)50ct LED Christmas lights for $5.99To view the full ACE Black Friday circular you can click here.
Sears will open the doors at 4am on November 26. Here are some Black Friday highlights:
Kenmore Washer & Dryer Combo $599.98Samsung 40" LCD HDTV $497.99Zenith 42" Plasma HDTV $399.99RCA 24" LED HDTV $229.99Paula Deen 14 Piece Cookware Set $119.99Snuggie $7.99Blue jeans for the whole family $9.99To view the full Sears Black Friday ad you can click here.
Gander Mountain stores will be open 9am to 9pm November 25, 6am - 10 pm November 26, and 8am to 10pm November 27.
Gander Mountain Black Friday Sales Include:
Carhartt Sandstone Quilted Jackets $39.99Polartec Fleece Tops & Bottoms $14.99Centurion 20 Gloss Black Gun Safe $549.99Supreme XT Fishing Reels $79.99America Recreational Kayak Package $399.99You can take a look at the full Gander Mountain black Friday ad here.
Bass Pro Shops will run it's Black Friday Sale from 6am - 11am November 26 only.
Bass Pro Shops Black Friday Deals include:
Moultrie Camera, Card and Battery combo pack for $79.94Fleece Jackets for the whole family $105 pocket jeans $9.97Carhartt Washed Duck Active Jacket $39.94Eagle Fish Elite Sonar / GPS $229.99Free IM7 Graphite Fishing Rod with the purchase of a Limited Edition Midas Gold reel.You can view the full scan of the Bass Pro ad here.
We'll be posting more Black Friday deals as they are released. Stay tuned!
Review: Psych Yourself Rich
Every Sunday, The Simple Dollar reviews a personal finance book or other book of interest.
A couple years ago, Farnoosh Torabi wrote You’re So Money, I book I succinctly described by saying “this book pitches personal finance advice for consumerism addicts.” Nevertheless, I concluded that the book did offer some very solid advice to the crowd that would not allow their Gucci handbags to be pried from their cold, dead hands.
Torabi’s follow-up book takes a decidedly different tack on the arena of personal finance, moving on to the idea that your personal mindset has a good deal to do with whether or not you find money success.
For me, this is the area where personal growth ties deeply into personal finance. Personal growth is all about becoming aware of your actions and choices and considering how you can improve those actions and choices. When you put that spotlight on your money, you can often reveal quite a lot about improving your personal finances, and that’s the sweet spot this book swings for.
Personalize Rich
What does “rich” mean to you? Once you sit down and start answering that question for yourself, you begin to realize that “rich” doesn’t mean the same thing to everyone. You need to figure out what you define as “rich,” which is, in essence, simply setting, in a very vague way, your long term goals. For me, rich is often defined in security – is my family safe from whatever may come? Others may define it very differently.
Establish Goals
From there, Torabi takes the ideas of what makes a person “rich” and transforms them into specific, tangible goals that a person can use. What does it mean for my family to be “safe from whatever may come”? When I’m able to transform that into a specific goal, like a big emergency fund, then I have something to work towards that’s real, as opposed to the vague notion of something that I might just be dreaming about.
Craft Your Money Philosophy
What you’ll find as you move through the process of figuring out what “rich” means to you and establishing goals based on it is that some particular values are going to be important to you. For me, family is a really, really key value, for example, and thus for me, my money philosophy centers deeply around providing for that family. I value having an emergency cash reserve and I’m less interested in chasing big financial growth.
Embrace Your Relationship with Money
The idea here is that many people are detached from their money in many ways. They don’t connect their hard work to the money they have, and they also don’t connect their checking account balance to all of the things they spend their money on. This leads to a deep sense of “where did all the money go?” and often to a sense that there’s something deeply wrong without really understanding what that is. The solution, of course, is to spend time focusing on this type of connection. Keep careful track of how you’re spending money. Talk about money with your loved ones, even if it’s uncomfortable. Keep it in your mind and embrace it.
Organize, Don’t Agonize
Another issue many people have with their money is that it’s difficult for people to figure out what they have and what they don’t have. Their records are disorganized and the information they need isn’t available when they need it, which makes it all the more difficult to really embrace your relationship with your money. The solution is an efficient filing system, where you keep the relevant information you may need in the future in a known place that can easily be retrieved when you need it.
Be Your Biggest Advocate
Another key step is becoming your own advocate – in other words, having a backbone when it comes to talking to people who have an impact on your finances. Don’t be afraid of the customer service representatives. Your approach should be to know what to expect from them before you even talk to them and when they don’t provide it, be insistent and keep going for what you expect (provided your expectations are reasonable, of course). Companies aren’t your advocate – you are.
Make Your Money Count
When you do start to get ahead financially (meaning your net worth – the total of your assets minus your debts – is going upwards), make sure you’re putting your money in places where it really counts. The more return you can consistently earn on your money, the better. If you’re putting it into savings, look for savings options that provide a better return. When you’re considering which debt to pay off, look hardest at the debt with the highest interest rate.
Think Five Years Ahead
Almost always, your best financial choices are made if you ask yourself, with every dollar you spend or invest, what will have the biggest positive impact five years from now. Sometimes, it’s a tricky question, but that question will point you (almost always) in several positive directions: towards frugality, towards repaying debts, and towards good choices with regards to making your money count.
Break from the Norm
For many people, these types of personal changes are very difficult because they’re different, not only from what they’ve been doing before, but it’s different than what the people around them are doing, too. You’ve got to recognize that you’re breaking from the norm in doing this, and this is often the best time to break from the norm in other regards, too. Revise your social circle. Look for new people to associate with. Break other bad habits in your life. Keep the changes simple and straightforward.
Embrace the Entrepreneurial Spirit
One final step is to embrace the idea that you are an entrepreneur. Everyone who exchanges work for money is essentially a small businessperson on some level, and every single small businessperson owes it to themselves to always seek out the best exchanges of money for their time and effort that they can find. This means not only looking for side businesses to start, but also it means focusing on improving yourself, including your abilities and skill set.
Is Psych Yourself Rich Worth Reading?
Psych Yourself Rich does a very good job of taking the broad ideas of the connection between psychology, personal finance, and self-motivation and transforming them into specific tactics that anyone can apply in their life.
From my perspective, psychology and understanding yourself are absolutely key elements for personal finance success. This book makes those ideas tangible and actionable.
The only weak spot, to me, is that Torabi doesn’t dig too deep into these issues at times. This book begs for some follow-up reads, from books like Your Money or Your Life or Mindset.
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