Installment Lenderslender of instalments
Go back to the basics, read on to see who's back in the installment business.
Ladies and gentlemen, we have been writing about the competitive situation with which installment lenders are confronted not only by their rivals, but also by the American postal service. Now, it seems that the central bank is again active in the installment banking industry - or at least one. The U.S. bank on Monday said it would grant short-term installment credits of $100 to $1000, which promised immediate funding choices.
It is interesting to note that the annual percentage rate of charge on lending is forecast in the 70 per cent area if the borrower is also a Depositors and in the 90 per cent area if not. Firstly, banking lending interest will be well above 36% APR - the sacred Grail of most consumers supporters and some political decision-makers.
How is that okay for a small institution, but not for an installment creditor? Announcing interest levels confirms the case that small US dollars lenders have been claiming for years that small US dollars credits are just not profitable at an annual percentage point of only 36%. Next, there will obviously be a different interest payment date for depositors if the client's banking institution has immediate payment rights, a banker's right of set-off or otherwise.
For the Bureau, accessing a borrower's current banking accounts for rapid restoration has always been seen as a poor thing. Third, the U.S. is promising a very fast loan approval procedure and reports on loan histories to loan inquiry offices. Isn' this the trademark of orthodox lenders? Currency's auditor, Joseph Otting, has piled lauds on the U.S. Bank's announcements that it should be in order with installment lenders.
For us, what this programme means and praises is that the usual banking practice in the piecemeal installment credit sector has been adopted by banking institutions and recognised by regulatory authorities as good for borrower and good for lender. Seeing whether a bank can offer the necessary level of relationships for this kind of transaction will be interesting.
Some years ago, therefore, they excluded bank loans to small dollars as a matter of principle, and now their regulatory authorities are making a U-turn. It will become clear over the years whether a bank can offer its borrower the same services as a conventional installment lender. Indeed, it will be wry when it turns out that conventional instalment lenders were the response to borrowers' needs for small loans.