Oct 19, 2013 Sean Albert
As was seen during the Great Recession, when times are financially tough, individuals will try to tap into extra funds wherever possible to keep their families safe, happy and healthy. Just one of these alternative finance options is short term lenders - legitimate companies people can turn to when banks and more traditional lenders shut their doors on those who need fiscal help the most.
Although the nation is out of the recession, that doesn't mean everyone has a perfect credit score or doesn't still need a boost here and there when ends don't seem to meet. It was with this in mind that desperate New Yorkers recently took to the Internet to patronize online short term lenders, because these companies cannot operate brick-and-mortar storefronts in the state. Going online made this move legal, which was only supported by the fact that a number of the companies were based out of Native American reservations and therefore didn't have to answer to state laws.
However, that's not how New York leaders saw it, and individuals like Department of Financial Services Superintendent Benjamin Lawsky started a witch hunt, seeking to shut down and legally penalize these companies. The ultimate result remains to be seen.
Government administrators, though, do not seem to be content with stopping there. Normally, when individuals don't pay off accounts, debt collection agents become involved. This is true no matter the industry concerned - if people don't pay medical bills, student loans, car payments and many others, they will likely be called by a recovery agent, and rightly so - without this measure, individuals would likely take advantage of companies owed money. This would snowball into a situation that could affect the whole economy, as these businesses would have to raise prices of goods and services to recoup the losses, which might have adverse effects on the entire nation.
The situation was no different in New York - individuals who owed money to short term lenders still had to pay these companies, even if the firms were technically not allowed to operate in the state. But now, state officials are attacking debt collection agents looking to find solutions that work for everyone.
Erie Country taking action
According to The Buffalo News, five companies operating out of Erie County, New York, are facing serious repercussions after attempting to collect on accounts created by those who took out short term loans in the state. The handful of businesses have to pay back a total of $300,000 collected from these so-called fraudulent dealings and are banned from collecting on these types of accounts. One company lost its license to operate in the Empire State completely.
The source reported that state Attorney General Eric Schneiderman gave a statement that unfairly labeled the short term lending sector as one that takes advantage of desperate consumers and lumped debt collectors in, saying it's unfortunate that they lose out, but it is what it is. He then went on to paint the small dollar loan sector in a bad light, speaking of rolling over loans and creating more interest - something that industry leaders themselves discourage, and that is blown out of proportion because these loans are never meant to last for more than a few weeks.
Could ruin collectors' reputations
It should come as no surprise to anyone to learn that the job of a debt collector is hard enough to begin with. Not only have bad apples and scam artists ruined the reputations of those who operate within the sector, but the media doesn't often do much to help the situation either.
This is why a situation like the one in New York is bad for everyone involved. Media outlets report that collectors are being punished by the state government, which could very well lead individuals to take an increasingly negative view of the industry. The fact of the matter is that these agents are just doing their jobs - companies are owed money by people who have decided not to or otherwise cannot pay. It's not fair that the lenders should suffer because their clients can't meet their financial obligations.
This is a sticky situation for debt collection companies that have really done nothing wrong. This scenario might prompt recovery services to regularly review all regulations that are applicable to make sure they are always explicitly on the right side of the law. Moreover, agents and other sector leaders may want to consider speaking out about this and similar cases - consumers should know that they are not the ones at fault, nor should they be thought of as professionals who are unwilling to compromise and will do anything to get money at the end of the day.