May 08, 2014 Philip Burgess
Despite the fact that short term lending provides those who have fallen on hard times with a way out of a financial bind, lawmakers throughout the United States have acted on inaccurate, biased perceptions of the practice by proposing laws that would impede people from obtaining such assistance. However, the effectiveness of these loans cannot be ignored, leading other legislators to hinder any referendums or bills from being passed.
Louisiana in the clear
According to The Times-Picayune, a suggested referendum that would place a cap on temporary loans failed to gain traction among lawmakers in the Louisiana State Senate. Many key figures lobbying on behalf of the industry claimed that the measure would put those practicing short term lending out of business and subsequently rob those in need of a practical way of obtaining assistance.
The prospective mandate would have limited borrowers to 10 loans per year, as well as require lenders to enter transactions into a database operated by the Office of Financial Institutions. The news source noted that the Senators voted 20 to 17 in favor of the proposal, but a new fee proposed within the suggested law required 26 votes.
In order to get some sort of restriction passed, Sen. Ben Nevers, a Democrat from Bogalusa, reformed the bill's contents to read that short term lenders would be required to abide by a 36 percent annual interest rate. However, the amendment ultimately failed. Although some senators were in favor of the revised mandate, Sen. Danny Martiny, R-Metairie, claimed that such a movement would kill the industry.
A new approach
Despite similar attempts to restrict the abilities of short term lenders, that doesn't change the fact that millions of American consumers seek financial help from such organizations. Tech Crunch reported that Google Ventures, Data Collective, QED and several other companies have recognized this trend and have invested in LendUp, which offers needy constituents alternative consumer credit. As of late April, the start-up has raised $68 million.
The source noted that the whole idea behind the project is to give needy U.S. citizens a way to get a quick fix to a temporary monetary need without having to worry about hidden fees, costly rollovers or high interests rates imposed by banks. However, the real catch behind the initiative is that consumers can build credit. Those with poor or no credit can apply for and receive small-dollar loans, while others possessing more favorable records can obtain loans for $250 and progress toward $1,000.
LendUp uses data analytics software to conduct quick risk scrutiny reports and evaluate credit worthiness to discern those who have bad credit due to unfortunate circumstances or mistakes from those who may have attempted to take advantage of "the system." As a customer repays any loans they have taken out from LendUp, he or she earns points to elevate their status within the company, allowing them to access for money for loans at lower interest rates.
Co-founder Sasha Orloff told the Tech Crunch that the company obtained $50 million in funding from Victory Park Capital, and that the start-up has been progressing at 10 percent to 20 percent month-to-month.