Payday lending
Payday lending, also known as a cash advance loan, has more or less become a multi-billion dollar industry in the U.S. over the past decade.
It is worth mentioning in this regard that a payday loan is a small, usually less than $1000, and cash loan. The repayment period is normally two weeks or until the borrowers next payday. Most importantly collateral is provided in the form of a postdated check or an electronic debit authorization on the borrowers checking account. And whats more there are generally three repayment options for the borrower. First and foremost, the borrower can repay the loan in cash. Or, in other word they can let the lender cash the postdated check used as collateral, or debit their checking account as authorized. Finally and of course the most troublesome, they can get another loan for the same amount to pay back the original loan and only pay the lending fees.
Generally speaking Payday lending started in small independent stores that offered their patrons check cashing services. But, over the last years or so it has evolved into a multi-billion dollar industry and is now dominated by national firms that only offer payday-lending services. Apart from that payday lending is also offered by some check cashing outfits that offer other fringe banking services such as check cashing and bill paying.
More often than not the Payday lending industry advertises their services as a quick, easy way to get emergency cash. The quick and easy part is pretty much right, considering the only requirements are valid identification, personal checking account and proof of income from employment or government benefits. Remember the point that no consideration is made of the borrowers credit history or expenses.
In an ideal scenario the payday lending industry targets low income, working class people who live paycheck to paycheck. And it pays off in quite a number of cases, because these borrowers end up rolling over their payday loans week after week and the payday lenders just rake in the lending fees week after week. That is why the lending fees can end up costing the borrower more than the original loan amount.
Talking about the Payday lending business, the rate charged for loaning money is based on the risk and
to account for inflation over the time of repayment of the loan. It is worthwhile remembering that payday lenders generally charge at least 15% for a two-week loan. That adds up to an APR of around 390%. In theory thats over 13 times higher than some of the highest rate credit cards at about 29% APR. No estimation of risk as well as inflation can justify an APR of 390%. Payday lenders are just profiting on the ignorance of the people theyre targeting. The 390% APR more than covers inflation as well as loss due to those who do not repay the loans. This more or less explains the extremely high rate of return payday lenders enjoy and the quick, explosive growth of the industry.
According to experts the Internet-based sector of the payday loan industry began in the 1990s, when the CAN-SPAM Act didnt yet exist. Thats why the Act didnt exist back then. But as the popularity of the payday lending industry has grown with utmost regularity, along with the popularity of all sorts of online businesses, it was time for the false claims and the intrusive nature of e-mail marketing to come under control once and for all. When the CAN-SPAM Act of 2003 became reality, the online payday lending industry took the notice of this.
The objective of CAN-SPAM, short for Controlling the Assault of Non-Solicited Pornography and Marketing Act was to set standards for distinguishing between e-mails that are legitimate and those which are SPAM. There is no doubt that the sending of SPAM is against the law. Since the Act more or less applies to all businesses that use email in their operations, most payday lenders found themselves needing to understand this new law that outlined severe consequences including penalties and jail.
Online payday lending and the CAN-SPAM Act
It is worth noting that the CAN-SPAM Act delineates guidelines for using email addresses for the purpose of sending and receiving electronically transmitted marketing materials. It is quite an extensive act, and below are some of the basics.
First of all, remember that the Act prohibits the sending of unsolicited email. New online payday lending websites are springing up daily and each is competing hard to steer the attention of the masses in its own direction. Mass emailing messages with flashy advertisements as well as discounted offers is a popular way to steer new customers to this lucrative business.
One method to distinguish a good online payday lending business from the "bad" ones is by never agreeing to do business with a payday loan company that sends you unsolicited commercial email. Fact remained that any legitimate company would never purposely violate the CAN-SPAM Act so youd have to wonder about the legitimacy of a payday loan company that would intentionally do so.
The CAN-SPAM Act also depicts that the information in e-mail headers and subject lines must not to be falsified. In case if you find yourself the willing recipient of advertising from an online payday lending company and you are tempted to respond to the e-mail, go ahead and do so. On the other hand if the information to which you responded turns out to be incorrect or misleading, that company could be in violation of the CAN-SPAM Act.
Opt for online payday lending businesses that adhere to the CAN-SPAM Act
Another portion of the CAN-SPAM Act states that any email message you receive must include an opt-out link. The link is a method of notifying the sender that you no longer want to receive email from that sender. In case if the email lacks such opt-out opportunity, the online payday lending business is violating the CAN-SPAM Act. Again, thats normally one online payday lender you should stay away from.
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