Sep 25, 2013 Philip Burgess
In New York, there has been a lot of controversy and debate in the last month or so regarding the short term lending industry. Governor Andrew Cuomo and Superintendent of Financial Services Benjamin Lawsky seem to have a personal vendetta against the sector, despite the good work these sorts of companies did during the Great Recession, when the doors of traditional lenders were all but closed to those without perfect consumer credit scores.
When they got wind that citizens were trying to secure alternative finance options any way they could - namely, over the Internet - the pair tried to shut down these operations, with Lawsky going as far as to send cease and desist letters. However, their actions might not have been completely thought through - the majority of the companies involved in online lending are run by Native American tribes, which aren't subject to state laws, only federal. And thus far, there are no nationwide laws against short term lending.
Nonetheless, the witch hunt still persists, with some New York leaders continuing to bash the sector undeservedly.
However, consumers, much like the other players in the scenario, may be getting mixed signals. After all, it recently came to light that a number of government organizations attempt to secure short term loans with relative frequency. If some of New York's state and local leaders have no problem with loans that only last a few weeks, why should the rest of the lawmakers deny consumers this right?
Short term loans abound in New York
While the terms of government loans may be slightly different from those of their private alternative finance counterparts, the overall point is still the same. The Associated Press reported that officials recently approved $350 million worth of short term subsidized loans for the New York City Municipal Water Finance Authority to finance wastewater projects in various boroughs.
This means that the organization is going to be borrowing a large sum of money it can't come up with itself over a short period of time, signaling that interest and other fees really aren't an issue. The group decided to go this route so that it could take immediate action when needed, so bad results wouldn't emerge. This scenario might have left some New Yorkers asking why they can't access the same type of credit.
After all, what happens when unexpected expenses arise, like trips to the emergency room, and individuals can't come up with the money to cover them? Unlike their own government leaders, they'll either have to incur late fees on such bills - driving down their consumer credit scores for years - or other things like rent, utilities bills and car payments will have to take a hit for a month or two.
Not just the case in New York
The status quo in New York isn't a rare situation, as this type of government financing is relatively common in other states as well. For instance, Wisconsin Dells Events reported that the town of Newport, Wisc., recently sought out and was subsequently approved for a short term loan to cover expenses accrued as a result of a local road project.
The news source said that the town will be responsible for a $100,000 short term loan. Local leaders plan to pay this amount back within three months and at a 1 percent interest rate.
Again, though these terms are different than the ones many consumers would face, the sentiment is similar. When private companies dole out small dollar loans, they tend to ask for a larger interest rate because they have overhead charges and employee salaries to contend with. However, because the amount borrowed is often far less and the time period much shorter, these fees are actually often negligible, ending up lower than what people would pay in late fees.