A man from San Diego, Doug Farry, has been meeting human resource managers, chambers of commerce, and city councils relentlessly for almost two years now, explaining to them what he knows from his experience as a former banker – many workers are forced to live from one pay check to another, and often face acute financial troubles in between. Doug runs a start-up that offers payday loans to employees with a steady job and salary, but people who could do with some additional funding in times of need or when they face an emergency.
Doug Farry has worked in a bank at Minnesota for many years and explains how the conventional banking system falls short of offering a real and practical solution to people who are just a little bit short of cash. Banks and other conventional lending agencies are simply not good enough, he says.
They are not interested in issuing a $1000 loan for a couple of weeks. The earning is too less, and the processing costs are too high for the banks. There is a real demand in the market for these types of loans, but the conventional lenders don’t offer a solution.
Employers Know Their Workers Have a Cash Problem
Its common knowledge for Farry and many other bankers, and even the employers, that many of their workers will often face a crunch in the middle of the month. There is nothing the employers can do in most cases. Salaries cannot be raised just like that unless the business is able to make more money or the worker adds to his qualification. It is difficult to find another job that pays better as there simply aren’t that many jobs available in the economy.
Sometimes, an employer will offer a cash advance, to be deducted from salary on the pay day, but that cannot happen with every person. Most employers will never even consider this as an option, though.
There are others who won’t do this, because they don’t want to get into the financial lives of their employees. Fair point! It can work the other way as well. For instance, an employee may not want to approach the CEO asking for an advance. It is too embarrassing. A payday loan, on the other hand, works discreetly. You can apply online, and the money is deposited directly into your bank account. Nobody has to know that you are running a bit short of cash. There is no need to approach friends, relatives, neighbors, or your employer.
Many business leaders also have this misconception that a cash crunch situation is a problem only with the homeless, unemployed, or people who fail to manage their financial situation efficiently. They are simply living in the denial mode, or don’t realize how grave the condition can sometimes be for the millions of Americans.
Doug Farry argues, “If you’re a CEO, making a seven-figure salary, this concept may not register with you”. The fact is that, if there is a real emergency, if you are living from one pay check to another, and if you don’t have considerable savings, which most people don’t, then it can actually be very difficult to come up with the required funds all of a sudden.
Doug’s payday loan program issues short-term cash advances that are typically between $1000 and $3000 to employees with a steady salary and income. He has been offering these loans for the last four years now, and is working with many employers closely. So whenever an employee approaches one of these employers for an advance against the pay receivable, the business forwards the request to Doug.
What Makes the Doug Farry Story Is So Remarkable
There are many other agencies across the United States, of course, which are offering payday loans to people in real needs. And like Doug, they don’t consider the credit history of the applicants when processing the requests. These are all legal businesses offering a valuable service to people who don’t have anywhere else to turn to.
But the Doug Farry story is still a remarkable one, because here a former banker not only acknowledges the shortcomings of the banking system, but actually goes forward and issues payday loans to employees, and that too with businesses that sometimes employ hundreds, and even thousands of employees.
Payday Loan Restrictions – It’s the People Who Are Paying the Price
This is a validation of the position of payday loan companies, which have faced so much criticism in recent times. A lot of federal and state laws have been passed in the last few years to restrict the operations of these legal cash advance businesses, but the authorities haven’t been able to come up with any practical alternative yet.
Yes, many payday lenders have had to wind up operations as a result, but the real sufferers are the people, those in need of quick cash relief. Many of them had to file for bankruptcy, while others had to approach the grey market, where the illegal lenders ended up charging an insanely high interest and fees.
Some employers and payday loan companies have even come up with unique schemes where the debtor doesn’t have to pay the interest or fees. This is an employee benefit being offered to make their life just a little easier, and make the business and workplace more attractive. The debtor just has to repay the amount they originally borrowed.
12 Million Americans Take Payday Loans Every Year
There is a huge demand all over the country for small dollar loans as a lot of people from different backgrounds and demographics face financial emergencies in the middle of the month and have little savings they can fall back on. In fact, according to estimates, as many as 12 million people in the United States take payday loans. Together, they borrow billions of dollars every year.
People with all kinds of needs apply for these loans. There are those who are in a real emergency such as an urgent car repair without which they cannot go to work and thus face a potential earning loss. Then there are people who have to buy medicines or need to pay their utility bills.
But there are others whose requirements may not seem to be an emergency, apparently. In Doug Farry’s experience, there was a person who wanted to buy lumber for a new deck. There was another who wanted the money so he could visit his grandma who was very ill, perhaps for one last time.
Personal preferences, requirements, and priorities differ. So we can never judge what’s important to someone else, by comparing with our lives. Just a few dollars can make all the difference. It can make life so much easier, so much more fulfilling and satisfying. It would be cruel to deny them this money, especially when they are in a position to repay it in a couple of weeks. Remember, a high majority of people who take a payday loan are committed, and repay the money quickly.
There is absolutely no reason why the Consumer Financial Protection Bureau or the law makers should clamp this down.