Here's a new tribal lender, the company name is Black Pine Lending. This company is one of the newest entrants (as of April 2014) to the crowded Native American lending community. The question is does this firm have a loan program that makes sense or are they simply jumping onto the runaway success of tribal installment lending?
Black Pine Lending is a tribal installment lender that is willing to issue loans for up to $1,000 and the repayment time frame is arranged to last several weeks. This is a blend of the tribal payday loan business and the installment lending side of the industry. I believe this is the future for tribal lending because it incorporates the risk mitigation of the payday business but it also increases the scheduled profits of the installment loan side.
Normally a tribal payday loan (or any state licensed paycheck lending style business) will be issued with a nominal repayment date of about 14 days from the original loan. Just like the name indicates the loan is designed to last right around or just over one pay period for the customer.
Many times what happens is that the borrower is not able (or not wanting to) part with all the money required to repay the full principal amount of the loan plus the finance fee which averages about 30% of the loan. What happens in many situations (probably at least half of all issued paycheck loans) is that the borrower will request that the loan be rolled over, so that they only pay the 30% interest charge and the principal amount goes completely unpaid, and rolls forward into another pay period, so the process starts all over again.
Now that business is getting a change because rather than take the chance that the customer will roll the loan over (and thus become highly profitable) we see tribal lenders like Black Pine Lending switching the loan to the installment loan format with many scheduled payments in the future.
The part of the loan that is staying in the payday format is the total dollars willing to be issued by the lender. In the past if you were an installment lender it meant that you would usually issue a larger loan, anywhere from $1,500 to $10K or even higher. That's because with so many repayment dates the borrower could afford to take on a higher debt burden because all that extra time, sometimes up to two years to pay it back, they could manage that greater debt load.
The key now is that we see a merger of those two types taking place. Look at the lending product that Black Pine Lending is offering today.
First, we have the payday loan aspect of it which is the $1,000 or less total dollar amount for the loan. That's the loss mitigation component, which payday lenders love, just in case the customer walks away from the loan and decides not to be responsible and repay. The loss on that one individual is limited to $1,000 or less.
Then you build in the installment lending aspect which is rather than just a 14 day window with one repayment date (and a loan that could be rolled into the future) we see a number of repayment dates that are scheduled ahead of time, anywhere from 12 to 20 dates, so that the customer is encouraged and expected to take advantage of all this time to repay the loan, thus building in the substantially higher profit margin that the installment lending business has in place.
Black Pine Lending is not alone, there are many (at least 20) Native American lenders who have merged these two models into one new super profitable loan product. The problem is that this new format, while it's great for the lender, doesn't do much for the consumer. In fact, it's a substantial loss of value for the borrower compared to where we sat two years ago.
The reason is that tribal lending used to provide some actual cash when you went to borrow with one of their installment loans; the consumer could get an installment loan anywhere from $2,000 up to $10,000 (back when Western Sky was around) and it wasn't too hard to get approved.
Now, as more tribal lenders switch to this 'limited risk' model that still gives them a greater chance at locked in profits (all those scheduled repayment dates) the incentive for them to issue a larger loan will begin to vanish. It's already started to happen.
This is not the way a consumer wants to see the Native American loan business unfold. It's a downgrade from what we as consumers had before. And that's why I can't say that Black Pine Lending is a good lender because that $1K maximum loan is simply weak when compared to other tribal installment lenders that offer up to $3,000 in a loan, like Plain Green Loans, Superior Funding and Great Plains Lending.
That $1,000 maximum loan is a bit of a deal breaker for what I'm looking for in an installment loan company. We're getting all that extra time to repay so the dollar amount shouldn't be so low.
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