There is a great deal of information available from payday lenders
regarding information they obtain from customers, income requirements,
and how much they are willing to lend. The specific formulas they use
to determine the amounts they are willing to lend are proprietary, and
I was unable to find one posted on the Internet, but it is possible to
determine the factors they are using in their models. They primarily
are based on a percentage of current income.
At a minimum, new customers are typically required to provide two
forms of ID (one of which has a photo), their most recent checking
account statement, a paycheck stub, and a personal check (Advance
America" http://www.advanceamericacash.com/states.php?state=TX. Some
lenders further limit approvals to people having direct deposit and
people not being self-employed ("Loan Requirements"
http://www.cashadvance.net/req.shtml). A variety of additional
information is also typically collected, including Social Security
number, driver's license number, information regarding recent or
impending bankruptcy, vehicle information, and references ("Customer
Application" http://www.advanceamericacash.com/downloads/applications/fl_app.pdf#fl).
Proof of address may also be required in the form of an addressed
bill ("How A Payday Advance Works"
http://www.gofastcash.com/products/paiperson.html).
Blank personal checks are highly desired as the means of loan
repayment because they provide lenders with considerable legal
protections that other forms of debt instruments do not ("Predatory
Small Loans A Form of Loansharking The Problem, Legislative
Strategies, A Model Act"
http://www.consumerlaw.org/initiatives/payday_loans/pay_menu.shtml).
"The use of personal checks is desirable by the industry for a variety
of reasons: 1) collection costs are reduced or eliminated because the
presentment of the check at a bank makes payment of the debt quick and
easy for the lender; 2) lenders threaten to use the criminal process
to collect on checks which scares consumers into repaying these debts
more readily than others (such threats cannot be made by lenders
regarding loans not involving use of a check as a payment device); 3)
lenders use the criminal process when a check is returned for
insufficient funds which provides the lender with much greater
leverage than it would otherwise have over the consumer; 4) some
lenders treat the check as security for the loan for bankruptcy and
other purposes which may create a payment priority."
Maximum loan amounts are regulated by state laws. These typically
range between $100 and $500, but some states allow loans of up to
$1000 ("Advance Information" http://www.thecashstore.com/advance.cfm).
At least one lender will lend up to $1300 to returning clients ("How
much and how many?-Fast Cash Loan"
http://www.zippycheck.com/payday/loans/muchmany.html). Some lenders
limit first-time borrowers to a maximum loan amount of $350,
permitting increases after the loan has been paid in full and at least
three payments have been made ("Frequently Asked Questions"
http://www.paydayone.com/modules/FAQ/answer.asp?cat=1&q=67). Others
limit new clients to $500 or one third of net (take-home) monthly
income, whichever is less ("How much and how many?-Fast Cash Loan"
http://www.zippycheck.com/payday/loans/muchmany.html). Loan amounts
are typically determined by income, adjusted for risk factors. For
example, this lender advances 50% of gross weekly pay, with gradually
increasing percentage as pay increases:
"The Amount of Advance will depend on your gross income as follows:
$ 200.00 gross per week qualifies for a $ 100.00 Advance.
$ 400.00 gross per week qualifies for a $ 200.00 Advance.
$ 500.00 gross per week qualifies for a $ 255.00 Advance."
"How A Payday Advance Works"
http://www.gofastcash.com/products/paiperson.html). Some lenders
require a minimum of $1000 a month in income ("FAQs"
http://www.personalcashadvance.com/faqs.html).
Risk factors that lenders either decrease loan amounts for or refuse
to grant loans on the basis of include recent or impending bankruptcy,
nonsufficient fund transactions, returned checks, overdraft charges,
and negative account balances occurring in the prospective lender's
checking account, and other outstanding payday loans.
A detailed report on payday lending can be found at, "Quantifying the
Economic Cost of Predatory Payday Lending" Center for Responsible
Lending (February 24, 2004)
http://www.responsiblelending.org/pdfs/CRLpaydaylendingstudy121803.pdf.
Additional overviews of Payday Loans can be found at, "Payday Loans"
Credit Provide http://www.creditprovide.com/payday-loans.html and
"Legal Loan Sharks" By Maureen Rooney, Creditinfocenter (June 17,
2004) http://www.creditinfocenter.com/loans/legalloanshark.shtml.
Sincerely,
Wonko |
