NILA is a new association for an old industry. Installment Lenders were the original core of what became the American Financial Services Association (AFSA), which was formed in order to work with Arthur Ham and the Russell Sage Foundation on consumer credit reform a hundred years ago. Ham credited these lenders with playing a crucial part in getting the universal consumer credit law written in 1914 and passed in so many states. After AFSA expanded to include providers of other types of consumer credit, such as mortgages, vehicle finance and credit cards, installment lenders felt the need for a new association which would retain a more singular focus on traditional installment lending.
INSTALLMENT LOANS: THE SAFEST PRODUCT
There is general agreement that installment loans are the safest loan product for the consumer. Lenders test the ability to repay and loans are paid off in equal monthly installments of principal and interest. Borrowers therefore have a “roadmap out of debt.”
Equally important, loans are made from local bricks and mortar community offices, which are individually licensed and examined by state authorities. Loans are not sold off but are held and serviced in the local branches, giving both borrowers and regulators real people to talk to when they need to.
Rates are fixed and are the same for all borrowers; there are no prepayment penalties either and the product is as understandable and transparent as we can make it. Installment lenders do not require post-dated checks or access to a borrower’s bank accounts, unlike other kinds of lenders.
When installment loans were the only product available there was no problem with overlending and no problem with chronic indebtedness.
Installment lenders report good and bad credit to the credit bureaus, thus enabling responsible borrowers to build up credit scores which can help them access other services.
In addition we believe in helping customers understand the importance of living within their means. We provide two main forms of financial education. The AFSA Education Foundation, a founding member of JumpStart for Financial Literacy, has developed an excellent product — Money$kill, which is used mainly in schools. And Dr. Rickie Keys of Renewal Financial has developed a product aimed mainly at adults, which many of us distribute through our offices.
We are currently working on a new disclosure, a kind of “Schumer Box” to help borrowers understand and evaluate the relative risk of various products. We feel that it is a major mistake that, while we mandate the disclosure of a loan’s price, we fail to do the same for its structural risk, which may be an even more important consideration.
For further information or questions please contact Phillip Holt with NILA at phillip. or Steve Pruitt with Watts Partners at