These days there has been tremendous hype on payday loan reforms by the Consumer Finance Protection Bureau (CFPB). And it is about time for someone to take charge. Various consumer protection groups and non-profit organizations are also lobbying to make predatory loans less predatory. Social media campaigns and state-level demonstrations are creating a ground swell for swaying public opinion. Testimonials and statistics are being used as supplementary materials to get the point across. Some, now, are starting to get it.
Why do Payday loans exist?
But will these proposed reforms eliminate the need for payday loans? In some manner these regulations legitimize them. The right method should be to identify the crux of why payday loans are popular and then develop a solution. First, let’s briefly go over how a payday loan works in an attempt to identify the real problem.
John’s car broke down and he needs $200 dollars immediately. Without a car he cannot get to work or drop his children off at school. And John does not get his paycheck for another 10 days. John has no choice but to take out a payday loan because his savings account is empty (as is his fuel tank) and he fears losing his job if absent again. He borrows the $200 against his future paycheck, and it will only cost him $40 dollars if he pays back the principal and interest on time.
We don’t need to talk about high interest rates, ruthless loan recovery tactics, negative credit score impacts, severe financial stress or the looming debt trap associated with taking a payday loan, because they are a constant. Let’s revisit John’s dilemma to identify the real problem. The real problem was time. John was out of it. He needed the $200 now but did not get paid until later. There was a time lag between earning money and spending it. John could not afford to wait till payday.
The fact is, tighter regulations or interest caps will only go so far in curbing the problem of predatory payday loans because there is lasting demand for them. People cannot afford to wait for paychecks anymore. Further, the emergence of control, stringent policy, and documentation in these reforms may force a large portion of payday lenders deeper underground and off the radar completely. This will undoubtedly give rise to an even blacker market. Is there a payday loan substitute which meets the needs John without adding any debt for him?
The perfect substitute
While everyone is talking about a cure, no one is looking for a sustainable preventive solution. Except, PayActiv has figured out by developing a game-changing wellness benefit that prevention is better than a cure. With the help of participating businesses, PayActiv allows workers to access their earned wages before payday for a nominal flat fee. This provides a debt-free financial cushion to those waiting for regular paychecks.
When those looking for $100 to $500 have a non-predatory, non-invasive, debt-free alternative, the demand for payday loans will fizzle out. The perfect substitute to payday loans.
PayActiv is changing the velocity of money in an attempt to create a zero-debt community. It is neither a loan, nor an advance. It is already earned. PayActiv is a technology solution in a mobile app.