Loan program and process for transacting the same

Abstract

A loan program and process is structured to provide a significant end-to-end cost savings while overcoming many, if not all, of the drawbacks and regulatory obstacles present in the current payday loan industry. The program, the end-to-end process, and the arrangement thereof, permits a lender to offer short-term, small cash loans to employees through an employer controlled payroll system. Access to the employer controlled payroll system is achieved through an agreed upon relationship between a coordinator, a lender, and the employer. As part of the agreed upon relationship, the lender guarantees that all fees, interest, and other ancillary costs over and above a principle amount of the short-term, small cash loan will be kept at or below a predetermined annual percentage rate (APR). In addition, the loan is repayable over a number of payroll cycles such that each successive payday the principle balance of the loan decreases.

Description

RELATED APPLICATIONS[0001]This application claims priority to U.S. Provisional Patent Application No. 60 / 886,637 filed Jan. 25, 2007 and to U.S. Provisional Patent Application No. 60 / 747,923 filed May 22, 2006; both provisional patent applications are incorporated herein by reference in their entirety.FIELD OF THE INVENTION[0002]This invention relates generally to a program and process for short-term loans, and more specifically, to a program and process of administering a short-term loan for an employee where the loan is amortized over a number of payback periods.BACKGROUND OF THE INVENTION[0003]A growing segment of lower and middle class people are under stress to meet monthly obligations such as rent, groceries, gas, and rising interest rates on adjustable mortgages. Meeting such monthly obligations is difficult enough and often leaves these people with little room, if any, for adapting to emergencies or other unexpected costs. In addition, many of these people are often perceive...

AI Technical Summary

Benefits of technology

[0022]In one aspect of the invention, a method of coordinating a loan program includes executing a contract between a first entity and an employer to provide a loan program that is offer-able as a benefit through the employer to employees of the employer, the contract having at least an agreed upon annual percentage rate per annum that includes fees, interest, and other ancillary costs, which taken in total provides an overall interest rate that is less than or equal to the agreed upon annual percentage rate per annum; and deducting loan payments directly from paychecks of the employees and transmitting the loan payments to a lending entity to reduce the representative outstanding loan balances of the employees with outstanding loans.

[0027]As will be readily appreciated from the described embodiments, the advantages, and the examples provided herein, the complete, end-to-end loan program and process entails a paradigm shift for transacting short term cash loans to employees. The loan program and process advantageously provides a benefit of short term cash loans to employees, where the overall loan costs are significantly reduced. In addition the loan program and process simultaneously provide a benefit to the lender, where the costs of transacting the loan are substantially reduced transaction and where the risks associated with the loan (e.g., missed payments, late payments, and loan defaults) are substantially reduced and these cost saving are passed on to the employee in the form of a short term loan with preferably an APR below an agreed upon maximum APR.

Problems solved by technology

Meeting such monthly obligations is difficult enough and often leaves these people with little room, if any, for adapting to emergencies or other unexpected costs.

In addition, many of these people are often perceived as credit risks.

One reason for the growth, success, and staying power of the payday lending institutions is that mainstream banks and credit unions cannot affordably originate, transact, and manage small, short-term cash loans.

In short, the transaction costs for the banks and credit unions are invariably too high in view of the requested loan amounts and further in view of the real or perceived credit risk.

Due to the practices of the payday lending industry, many individuals find themselves trapped in a downward, financial spiral.

Inevitably, some borrowers find that they are unable to repay the loan in full on or before the next payday.

In some cases, the borrower, either purposefully or mistakenly, may provide a payday date that is incorrect.

In other cases, the borrower simply does not have enough funds to payoff the loan and must default on at least a portion of the loan amount.

The online lender 12, on the other hand, has significant costs of attracting and ultimately acquiring new borrowers.

One drawback of Neilson is that the payday loan process taught therein continues the practice of requiring full restitution of the payday loan on the next payday while extracting high loan fees from the borrower.

Many practices and aspects of the payday lending industry have presented challenging issues for governments and consumer advocates.

In addition and as mentioned above, mainstream financial institutions are unable to profitably service small, short term payday loans, so the people needing these types of loans must suffice with the existing model.

However, the excessive fees and interest associated with the payday loans, the unforeseen “debt spiral,” and the practice of rolling over loans multiple times has severely damaged the reputation and efficacy of the payday lending industry.

Closing down the payday lending operations around the military bases, however, may not cure the problem.

Since the payday loan shops around the bases can no longer provide the loans, it is anticipated that many military personnel will use online payday loan vendors.

Some of the high-fee, online lenders may be out of reach of government laws, while others may claim that they were not aware the borrower was a member of the military.

Thus, while closing down the payday loan shops around the bases may have some positive effects, it does not cure the underlying issues and problems.

Instead, closing down the payday loan shops around the bases is likely to simply shift the business to another venue, such as to online vendors, where oversight and enforcement of regulations may be much more difficult.

Commercial banks, with multiple physical locations and online resources, have been unable to profitably transact and process short term loans.

This is due, in part, because of the federal banking deregulation of 1980, which caused for-profit banks to become increasingly cost conscious and bottom-line minded.

The customer segment that needed small, unsecured cash loans to meet occasional emergencies, posed several problems in the banking industry's business model.

First, the effort to originate and underwrite a loan is relatively costly and banks must meet certain professional, safety, and soundness standards.

Because the emergency loan amount required was small and the repayment term short, the resulting APR rate triggered usury violations.

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