Moneylenders have been a hot topic in over the last decade, with a growing number of fraudulent businesses illegally operating under the protection afforded by cross-border operations. This has given the moneylending industry a negative reputation it doesn’t entirely deserve. By way of example, more than 5% of the population in Singapore has used payday loans to borrow money. Regulated companies that operate according to established guidelines are far from the stereotype bad journalism would lead you to believe.
According to recent studies, 8% of renters with an income between $40,000 and $100,000 have used payday loans to borrow money. With poverty-level income in Singapore well below the $40,000 mark, these are not impoverished people desperately seeking money. Instead, they are middle-income Singaporeans looking for short-term financing options. This raises the question of why someone in this income category with access to other financing options would choose to use a moneylender. The answers may surprise you.
First, lending industry regulations mean the outlandish stories you may have read are simply not accurate. Laws limit the term and finance fees associated with payday loans. This protects consumers from predatory lenders.
Second, the average person who has used payday lenders doesn’t have problems paying back the money. Rates are generally about $15 per $100 borrowed, and the average loan amount doesn’t typically exceed $400. Most people end up paying $50 in finance fees on a loan, and never go back to the loan office again. For many, this is preferable to using a pawnbroker to haggle over the value of their personal goods, or weathering the scorn of someone they know when asking to borrow money. Those who frequently use payday loans are the exception and not the rule.
Third, the number of internet-based moneylenders providing payday loans has increased with demand. Being online has enabled SEM and SEO to marry up with analytics, allowing a number of lenders to offer loans online. Being online does not exempt them from regulation, so they are still regulated and monitored. Everything is done through legitimate bank channels, and the fees are no different than walking into a traditional lender to borrow money. That said, not every service is the same, and not all of them operate within the law. This is primarily what contributes to the negative media portrayal of the industry.
However, this negative and biased journalism is not due to widespread abuse of money lending or based on any significant facts. Rather, it’s due to consumers who aren’t aware of their rights and the protections. Despite this, biased reporting continues, but it does not go unanswered. For example, payday loans are often accurately described as a regulated choice made by informed consumers. But who are these informed consumers, and are they by common consensus actually informed, or victims of predatory lending practices, as sensationalist reporters imply?
The truth is that regulated payday lenders operate within the constraints of the law that governs them. They provide tax revenue, create jobs, and offer consumers short-term financial solutions. Their services can help a person meet unexpected expenses or cover short-term money needs. But the regulations governing lenders should always be considered before accepting a loan. Considering these facts, one might still wonder why major news outlets would report so negatively on the loan industry and associated lenders.
Ironically, particularly in light of ongoing fake news scandals around the world, it should come as no surprise that incorrectly labeling illegal loan sharks (or “ah longs”) as payday lenders would attract readers. However, the fact of the matter is businesses operating in violation of the law to offer loans are criminal, and no different than a mafia organization giving a loan. Calling themselves payday lenders no more makes them a regulated business than a drug cartel labeling themselves as a drug store makes them a pharmacy. So the next time you need quick money, consider a real loan from a regulated moneylender.