Reaching this 21st Century, the money lending industry has seen a lot of changes and turmoil but has always proved to be the backbone of the economy. Right from the ancient times when money lending prevailed mostly in Greece and Rome to the Dark and Middle Ages of history and even passing the periods of Reformation and Renaissance to the 19the and 20th centuries, the journey of moneylending has been eventful.
In the ancient times money lending was morally condemned by the people as well as the church. In the middle ages it still considered as an outsider and today it is actually the most valuable and inseparable support to the individuals and especially for the businesses, large or small.
The payday loans
One of the most popular and beneficial money lending service of today is considered to be the payday loans. Though critics victimize it as a moral antagonism, there is a prodigious demand for these loans.
- These practices are mostly consigned to the peripheries of society as well as the edge of the law.
- These loans typically carry an annualized rate of interest that may be as high as 1000 percent!
- These loans are given out for a very short term, typically to be paid back on the next payday.
According to an estimate, there are about 25,000 payday stores all over America, which indicates the popularity of this specific money lending model. The research also found that:
- This is actually a $6 billion-dollar industry
- It serves about 15 million people every month.
The institutions that issue these loans, just as the banks, have found ways to evade usury laws of the state.
- However, payday loans are not available with the traditional banks because the regulators of the banks have sternly restricted the capacity of the community banks to offer such payday loans. The regulators even disallow the banks to work with any offices or entity that deals in payday loans.
- More than 13 states have banned payday loans overall and the Congress is presently looking for ways to ban all types and forms of payday loans.
In spite of all these restrictions and bans, the demand for these specific types of loans is soaring with each passing day simply due to the fact that these loans serve a genuine purpose of the individuals and their economic needs. These payday loans are ideally of great and a real value for all those low-income households.
Consequence Of Government Policy
There is a tremendous growth in the money lending industry and it is supposed to be the direct impact of the government policy. Today, you will not only have the traditional banks and credit unions to turn to when you are in need of money, but you will also find a lot of alternative sources as well.
Most significantly, you will see a plethora of online money lending agencies such as liberty lending USA and others. These online lending sources are doing great business simply due to the facts that:
- They need the least amount of paperwork and one does not have to take the pain of visiting the office physically
- Everything is done online right from applying for the loan to its approval and disbursement
- One can come to know about the approval in an instant eliminating the customary waiting period in conventional loans and most importantly
- These sources are safe and secure with an exceptional customer support and service guaranteed.
The government has also tried and is trying hard to cope up with the varying funding needs of the people for business, or for buying a home. Encouraging home ownership, especially among the lower income households, the government has created the Federal Home Loan Banks. These banks are exempt from state and local income taxes so that it can provide incentives to the smaller commercial banks to offer mortgage loans to the low-income Americans.
Steps by Congress led to a frenzy
The Congress on the other hand, has also passed the Community Reinvestment Act. According to this Act, all banks are required to invest in the local communities and that includes providing mortgage loans to the low-income people.
- In the recent years, all these government schemes and steps taken by the Congress to provide low-interest rates in accordance to the Federal law has led to a frenzy among the middle-income groups to borrow money as well as to lend money.
- This means that the actions taken by the government and Congress has exaggeratedly mitigated the risks of the money lenders. All this is done on the obstinate and humane principle that the society on the whole has a moral duty especially to the low-income people to increase home ownership.
The consequence of this idiocy by the government has in turn resulted in a significant increase in the number of delinquent loans as well as foreclosures. This, in the process, has caused a widespread financial problem for the banks and at other institutions.
When it comes to blaming, it is almost like a game of passing the buck from one to another. Though an objective evaluation of the facts and figures will point out a finger on the government policies that caused such a disaster, but it is always the money lenders who are blamed and made the scapegoat, just as it was in the past.
Yes, it is true that there are lots of money lenders who clearly took irrational risks while making a number of loans and suffered significant loos or even bankruptcy, but that is their own problem. Just because they suffer the penalties of their irrational acts and decisions does not mean the entire basket of apples should be considered rotten and discarded.
The government most definitely should not bail them out but however should not ignore the role of the money lenders in this 21st century either. They should meddle with the economy to prevent the money lenders to be so frivolous but should also support the good ones who are ready to take on the risks just for the sake of the country’s economy.