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Short-term financing industry has both critics and fans

Apr 03, 2011 Todd Milner

Short-term financing industry has both critics and fans
Consumers everywhere have taken advantage of nontraditional financing options in recent years, at a time when many consumers' credit is below average due to the downturn in the economy. Many have turned to lenders that use alternative consumer credit data when making decisions on financing. The more flexible standards that these agencies provide has been helpful to many that may not have been able to get them from traditional lenders.
 But some have run into difficulty when working with short term lenders. The Lexington-Herald reports that Kentucky resident Penny Troeh got herself into financial turmoil when she started heavily relying on short term lenders for various expenses. She eventually got to the point of using five local short term lenders and trying to cope with the high interest rates. "It got to where all my pay was going to them," Troeh told the paper. Some in the state government of Kentucky have sought to reign in some of the lender's practices by restricting short term interest at a 36 percent annualized rate. However, thanks to a substantial lobbying effort by those in the industry, the proposal was stopped in its tracks. One of the men behind the effort was John Rabenold, president of the Kentucky Deffered Deposit Association and vice president of Cincinnati-based Check 'n Go. He said that the restriction would have put the industry in an impossible position to survive. "I cannot pay the rent at 36 percent APR," Rabenold said in an interview with the source. "That allows me to charge 3 percent per month, or 1.5 percent for two weeks. ... In every state that has been imposed, it has eliminated the business. Thirty-six percent APR is absolute prohibition." Others in the industry said that the alternative credit was an important avenue for those who needed money quickly and couldn't find anywhere else to obtain it. "We had no customers who ever complained about that," Jim Mischner, owner of Check Exchange, told the paper. "You only have people who need it, for something that's happened. ... These are people who needed a service. That's their choice. ... The banks don't do it. A lot of people don't have credit cards, don't have savings. Nobody has a better idea. Who are the customers going to go to?" Other states have recently discussed the short term lending industry. The Houston Chronicle reports that the Texas legislature recently considered a bill that would prohibit the lenders from charging high fees to customers.