One week after an article published in the Columbia Missourian that criticized the number of payday lending services in Columbia and questioned their need to exist within the town, a response to it was written by Tom Linafelt – the director of corporate communications for QC Holdings, a payday lending company – and published on Thursday.

In the letter, Linafelt argued that payday lenders were necessary for those who could count on them for funding that helps avoid damage to one’s credit rating.

“Payday loan borrowers are often making reasonable choices to proactively manage their finances in the face of more onerous circumstances,” Linafelt wrote. “In fact, the vast majority of short-term borrowers fully understands and accepts the associated fees, and uses the product as it was intended – a short-term solution to urgent, unexpected financial needs.

He added that lenders also offered extended payment plans for borrowers who had trouble paying back their loans on time, eliminating their need to renew loans and add on more debt.

However, if someone finds themselves in need of money to post a bond, a payday loan is a viable means to quickly get the cash needed to pay the expense without requiring the help of a bondsman.
A cash bond is a payment to release a defendant from jail to await their trial date that is paid fully in cash by someone over the age of 18.

In some cases, namely if the defendant is found guilty of charges, bonds can be retained to pay for court costs and fines. Otherwise, if all charges are dropped or a defendant is found to be not guilty, the person whose name is on the cash bond will often receive a full refund, according to a government document explaining the motions from the Bannock County Courthouse in Idaho.

If one cannot bail themselves out of jail with their own funds or help from those close to them, they can take out a surety bond through a bondsman that is backed by an insurance company.

However, surety bonds carry a premium fee as a sheriff’’s fee that are not refundable and could plunge someone who is already struggling with finances – and perhaps further legal troubles – into further debt.

In a report released by the Financial Service Centers of America entitled The FDIC’s Small-Dollar Loan Pilot Program: A Case Study after One Year, banks were found to be unwilling and unable to translate incentives provided by the FDIC into effective small dollar loans for the Americans who need them.

The program, which had been initiated in February 2008 to allow banks the ability to provide a profitable alternative to payday loans for consumers, instead turned out to be anything but as consumers largely ignored it. While 446 participating banks made 8,346 loans under $1,000, the report added that a single established payday lender could issue 8,743 payday loans in a single year.

“This pilot program is destined for failure, not success,” said FISCA Chairman Joseph Coleman. “If anything, it points to the critical role that financial service centers play in the small dollar credit arena by servicing consumers’ need for this type of credit.”

The report added that the 36 percent annual percentage rate ceiling that has been imposed in the pilot program had turned many banks away from the program as it rendered the loans “not profitable or scalable” to them.

On November 2 the City Council of Columbia, Missouri voted in favor of stopping the addition of any new payday loan businesses to the 21 state-licensed lenders already present in the town. The council justified its decision by saying the city needed to examine the businesses pros and cons and “decide what would be best for the community,” according to councilman Jerry Wade.

However, in a letter to the editor published this week in the Columbia Daily Tribune – which had reported on the City Council’s decision – TCCF director of communications Sarah Longwell criticized the moratorium as interfering with citizens’ personal finances.

“Eliminating these services will deprive the city’s neediest residents of valuable financial tools, ultimately causing them to pay more for their financial services,” Longwell wrote. “Borrowers are best served when they have more choices to pick from, not fewer – and an economic downturn is no time to raise costs for low-income workers.”

She added that by limiting the payday loan business, the City Council could potentially push consumers in need of immediate funding to “less desirable” alternatives as well.

In an article for the Credit Union Times titled What if Payday Loans Go Away?, those who feel the agency – which was approved recently by the U.S. House Financial Services Committee – argued that short term loans have shown their importance because of how useful they have been for those in need of money.

David John, a financial services and banking analyst for the Heritage Foundation, argued that limiting or eradicating payday loans would be a “stupid move” because people who depend on the industry could potentially turn to loan sharks or other illegal means if desperate for money with no other alternatives.

“Banks and credit unions always used to do that sort of lending to their strong members and customers, but it’s not clear they would do that sort of lending to some of their more marginal customers or members,” John said. “And those are the folks who are more likely to need a payday loan.”

Community Finance Services Association of America president D. Lynn DeVault added that the organizations trying to adjust or ban payday loans were not speaking on behalf of those who do use the loans, and that banning them “would be devastating to many families.”