Financial education is the key to success in any budget, but in order to successfully handle a payday loan, it's a necessity. There should be mandatory classes in school designed just for this instruction. Young adults are very financial naive.
In North Texas, there was a gathering sponsored by the United Way. This group was able to enlist many credit union officials and bank officials to offer their financial knowledge to the lay person. Of course, these institutions sent their officials in hopes of getting people to obtain a traditional loan, but the under banked and unbanked are unqualified to do so.
The credit union officials and bank officials were under the assumption that the people that attended the information course were merely uneducated about the traditional loan. In essence, these people have chosen to find loans through other sources. Some may be skeptical about banking institutions and/or credit unions and do not like the plethora of fees that are levied on them when they borrow money.
The approach to educate people about debt and payday loans is a much superior option than to try to ban the payday loan from the state altogether. There should be more seminars of this sort, offered to the general public at no charge. If people are educated about debt and loans, than they are more likely able to make better choices when extra cash is needed. Finding the lowest cost solution to solve their financial need is a welcome plus.
Consumers who use a payday loan are often on a lower income scale and have less than a 4 year college degree. They are mostly divorcees, parents, African Americans, white women and the general population of the ages of 25 to 44. Most of these consumers make less that 40,000 a year and are in a hurry to get their much needed cash. If those who are seeking to take out payday loan educate themselves as to the costs, conditions and terms of the loan, they are more likely to avoid ending up in an unmanageable debt cycle.
Legislation passed to regulate payday loans has been helpful in this area. However many payday lenders can skirt by these regulations. A licensed payday lender is obligated to follow all the legislation and laws set in place by the state that they operate in, or be in jeopardy of losing their license and their privilege to operate.
A licensed lender is obligated to fully disclose all the term and conditions of the loan to the borrower before any papers are presented. These disclosures must include all the fees, interests, repayment dates; roll over clauses, and bank information required from the borrower. There is a lot of information to disclose to the borrower and most borrowers turn a blind eye and a deaf ear to this knowledge because it's an overwhelming amount to process. The cash is their immediate focus, not the aftermath of the transaction.
Texas is trying to educate consumers before they even step into a payday loan, car title loan, or pawnbroker's office. If this approach is successful then disclosures are second hand knowledge to the consumer and their haste in obtaining the funds is not an issue. Knowledge is a powerful thing.
