I have noticed the internet is littered with complaints about Mobiloans in the last few months and this is a little suprising. On the surface of course it's easy to understand. Tribal lenders, just like the thousands of payday lenders out there, charge very high interest rates for their loan products. Why this is even legal is a big question these days and someday soon these rates just might not be legal.
But let's review Mobiloans very carefully and see just what is going on here. When one compares Mobiloans to the dozens of other tribal lending companies out there, well frankly there is a good defense to be made for Mobiloans. This isn't to say that Mobiloans is a saint because in the end this is a short-term lender with interest rates that anyone would want to avoid.
Here is the case against Mobiloans. There rates are very high. They have a product line that functions as a line of credit as much as it does a loan. Therefore a borrower can keep accessing the funds (new funds) as they pay off certain amounts. So this is a dangerous situation, right? If I have a loan that charges lots of money in finance charges and then combine that with my option (most likely as a person in financial straits) to keep borrowing from that established credit line, well it doesn't take a genius to realize that a certain percentage of borrowers are going to get into serious trouble.
Would it be better if Mobiloans just offered a basic loan product? Most people would say yes and by the way, while you're at it, lower those rates a little bit. If a borrower had an established loan which could not be modified (or increased) with fixed rates and fixed dates to repay, then the borrower would most likely not be encountering as much trouble as the current Mobiloans arrangement with their credit lines.
Now that we have that as established fact let's look at a positive situation that Mobiloans builds into their loans. A positive factor that many, many other tribal lenders completely avoid. This factor can be just as destructive to lenders as the complaints against Mobiloans.
When you take out a loan (from your line of credit) from Mobiloans you are assigned repayment dates. Unlike so many other lenders (tribal or otherwise) that extend a short-term loan, Mobiloans establishes a batch of repayment dates that occur every other Friday, which is payday for the majority of workers.
Now here is the catch. Mobiloans tailors their loans very similar to that of a traditional bank who arranges for each payment to include a little bit of principal (and a lot of the finance charges) in the early payments and a lot of principal (with less finance charges) in the later payments. And actually, a technical note, Mobiloans is a little better than traditional banks because usually those first payments on a 30 year mortgage are 100% finance charges, where at least Mobiloans has the borrower repaying some of the principal right away in that first repayment.
The point is that Mobiloans is forcing the borrower to make some progress towards paying off the loan in the original terms that established the loan.
Now let's look at several smaller tribal lenders that engage in short-term payday loan operations. Let's pick on a couple companies, how about Black Bear Lending and Golden Valley Lending, both of which offer a straight-up payday loan. The loan is for X amount of dollars and technically that loan is due in full, with the finance charge, on the customers next payday.
However, this is not the normal function of these companies. Instead, they offer their customers the option of just paying the finance charge for that pay period and extending the payday loan (with 100% of the principal amount) still intact, until the borrower reaches their next payday in 14 days. Only thing is take a guess what happens in 14 days? The borrower will again repay the interest amount (finance charge) for that period again. And the "short-term" loan gets rolled again to the next payday with the full principal amount intact. And guess what happens in 14 days? Right. Exactly.
Now, do these dozens of tribal lenders (and non-tribal online lenders) have any length of time that lists how many times the "short-term" loan can be rolled? Is there any limit listed on their websites? The answer is no there is not.
So without sounding like a Mobiloans cheerleader, let's at least look at the full scope of what is going on in the world of tribal lending. Mobiloans is at least saying to their customers you have these 20 dates you need to pay X amount of money and then you are done. Those dates are expensive but they do decrease in severity the longer the customer runs into the life of the loan. And the customer does have the option to pay principal amounts off during any point in that 40 week loan.
With so many of the other tribal lenders they are operating within the terms of their website and they haven't done anything wrong. But there seems to be a lot of winking and looking the other way here with these lesser known lenders. On paper they offer a loan that looks much less destructive and debilitating than the Mobiloans long-term 40 week loan with all those payment dates. But has anyone really looked into (or is there data even available anywhere) that displays how many tribal sh0rt-term loans that are intended to be issued for only 14 days that have actually stretched into months? Perhaps stretched into many months or even over a year? Now the lenders would say this is not fair to state that because there is no evidence of it taking place but at the same time there is no data to indicate it is not.
There are two data sources that I can find that indicate this is taking place. First, I have the anecdotal evidence of my own experience where I was allowed to keep making payments with three different tribal payday loan companies with no end date every dictated by the lender or given by me as a suggestion. The loans just roll on and on without end if you keep making those payments. Think about it, if you are a financial business that wants to make money and you have a customer where they just keeps paying you money every other Friday and you still hold a financial grasp on their checkbook after they pay you, do you change the situation? Most likely not. That's not to say that financial companies are evil but last I checked the major banks in our society (Chase, American Express, Citibank) didn't turn down hundreds of billions of dollars in interest free money provided from a nation that is technically already broke, with the national debt currently around $17 trillion. So these firms are out to make money and if people wander into the trap of revolving debt payments (same operation all the credit card companies have operating) then they just say "so be it" and take the money.
The second piece of evidence is the many blog, forum, and website posts where people are complaining about these lenders. There are people who will sometimes wake-up from the bad dream and look in their records, realizing they have paid on the same loan for many months with no progress made at all. There out there, just search tribal lender and revolving payments, you'll find a lot of people who thought or hoped or expected that all of the payments they had made would somehow reduce (or God forbid, pay off) the "short-term" loan they had taken out seven months earlier.
This is not to give a pass to Mobiloans or their tactics, rates, and methods of lending. Mobiloans certainly knows that their credit line offering is going to make it easy for people to fall into a trap of debt. They also know that spreading a loan over 40 weeks makes it look or seem less painful to the borrower but in fact they are cleaning up the money at the expense of the working stiff. I get that and anyone who wants to complain about Mobiloans, hey feel free.
My larger point is that there is another lending format going on that is even less obvious and much less publicized. Most payday lenders hide their operations with the assumption by regulators, by society, and even by the customers that these loans will in fact be short-term in nature. 14 days is a short amount of time. But I know there is a certain percentage, and I believe it might be a large percentage, of people who are rolling these loans over and over and over. The "payday" lenders are living up to that label without most borrowers realizing what is going to happen to them. These lenders will be there every payday taking their cut for a one-time loan that happened many months ago and was supposed to (on paper) be concluded many months earlier. Yet the borrower still owes the exact same amount of money they owed the first day of the loan many months prior.
Is this a worse, more tricky situation than the terms (and functions) offered by Mobiloans? I would say Mobiloans is the winner here because they lay out everything on the digital table. The loan will end at a certain point in time. Your payments will start out large and decrease steadily during the life of the loan. The open-ended, dangerous, gray nature of the payday lenders is that nothing is established except that you got some money and, as a bare minimum, you have to pay X number of dollars every other Friday. That's it. Beyond that, let time and tide just roll by and we'll see what happens. Maybe you still owe the same amount of money a year from today that you did on day 1 of the loan, and you've been paying every 14 days since that day one year ago.
That sounds worse to me than the established and visible danger a company like Mobiloans provides. Just because something is worse that is out of sight doesn't make it not worse. Watch out for payday lenders and the ability to roll those loans. If I had to go with a loan at least Mobiloans is going to set a date for the whole repayment time to end. Payday lenders, well they might just not want those payments to end at all.
Mobiloans is catching all kinds of heat, but there might just be a worse situation out there we just aren't seeing as clearly. Out of sight, out of mind is the saying.