Payday Lenders Defend Practices
Courier Journal – March 8, 2009
While The Courier-Journal provided a group called CLOUT over 2,000 words to spread misinformation about the payday advance industry, we were offered just 500 words to set the record straight.
It is a myth that anyone can get a payday advance. Proof of regular income and a bank account in good standing is required before a person can even apply. Of course, CLOUT never lets the facts get in their way. They talk a lot about “unbanked” households getting payday loans, yet it isn’t possible for someone without a bank account in good standing to get one. Further, there is nothing “predatory” about what we do. People come to us voluntarily and are offered service only if they meet these qualifications.
It is a myth that only the poor and uneducated use payday advance services, and that we prey on the elderly. Over two-thirds of our customers make more than $25,000 per year. Two-thirds are under the age of 45. A majority are married or live with a partner. About half have children. More than 94 percent have a high school degree and 56 percent have some college. This is a picture of middle-class Kentucky, not of the poor and uneducated.
Industry critics use bloated annual percentage rates (APR) to attack payday advances. APR is used to calculate long-term loans, like mortgages and auto loans. A payday advance is paid off in two weeks with one payment, not over five or 30 years. Using APR distorts the fact that Kentucky law restricts payday advance fees to no more than $17.65 per $100 borrowed. The profit margin on that is about 49 cents per $100 lent.
Where is CLOUT’s outrage at 755 percent bank overdraft fees, or 965 percent credit card late fees? CLOUT claims Kentuckians pay $131 million per year in payday advance fees, yet offers no criticism of the $344 million in bank overdraft fees Kentuckians paid in 2008.
CLOUT lauds states like North Carolina and Georgia for banning payday loans, but the research they cite shows that after the ban, Georgians bounced 1.2 million more checks per year, official complaints against lenders and debt collectors in North Carolina increased by one-third, and Chapter 7 bankruptcy rates increased by 8.5 percent. These statistics will find Kentucky if payday advance is driven out of business and consumers can’t get short-term credit to deal with emergencies.
Finally, it is simply not true that we oppose government regulation. Industry representatives worked with state officials to craft legislation creating a database system that ensures no one has more than two loans at a time.
While payday lenders educate their customers, follow the rules and offer a competitively priced service, groups like CLOUT rely on misinformation, fictional stories and flat out lies in their attempts to drive us out of business.
D. LYNN DEVAULTPresident Community Financial Services Association of America Alexandria, Va. 22314
CLOUT Issues a Response:
In an op-ed in last Sunday’s Forum section, D. Lynn DeVault, president of Community Financial Services Association of America, a national trade group for the payday loan industry, made a valiant, if dishonest, effort to defend the industry and to discredit CLOUT’s recent op-ed exposing the truth about it. This is to point out various factual errors and false accusations in his piece.
First, in CLOUT’s op-ed, we did not state that that anybody, including unbanked people, can get payday loans. We know full well that one must have a checking account to get a payday loan. It is the second part of CLOUT’s campaign, relating to a “Bank On”-type initiative, that has to do with unbanked persons. Those who are banked and yet still use payday lenders & check cashers fall more into the category of the “underbanked,” who will also benefit from the Bank On approach.
Secondly, Mr. DeVault attributes several other things to CLOUT (or at least implies we said them) that we never said, such as that only poor & uneducated people use payday loans, or that they prey on the elderly. Also, we didn’t cite research about Georgia as he claims, and the research on North Carolina that we did cite says nothing about Georgia and nothing about bounced checks, bankruptcies, etc. The research that we did cite stated that consumers in North Carolina were better off after payday lending became illegal there. The different research that he refers to is actually another study that the industry often cites which was very poorly done and we believe is therefore not scientifically valid.
That study attempted to connect the end of payday loans in NC & GA to an increase in bounced checks & bankruptcies. Unfortunately, the study actually analyzed data on bounced checks from regional check processing centers, which included data for several other states in the southeast besides NC & GA, some of which still had payday lending (including areas hit by Hurricane Katrina whose checks began to be processed at the GA regional center after the storm). The study made no effort to separate out checks bounced in NC & GA, or checks bounced by actual former payday lending customers. Even if the study’s data were valid, the results still amount to miniscule increases in bounced checks amounting to mere tenths of 1%. Similarly, the study’s bankruptcy data does not control for the multiple causes of bankruptcy, and does not take into account a bankruptcy law change in GA that affected rates of bankruptcy during the years studied. (As a side note, it’s no surprise that Mr. DeVault doesn’t say anything about how payday lending often contributes to bankruptcies. Just recently CLOUT received a report from the Legal Aid office here in Louisville stating that 70-75% of the bankruptcy cases that they deal with involve payday loans as one of the creditors.)
On another note, we find it especially ironic what Mr. DeVault had to say about the industry’s support of government regulation. Similar to quotes by industry spokespersons and state legislators in other recent stories in the Courier-Journal about this issue, Mr. DeVault completely corroborates CLOUT’s point in our op-ed that the kind of weak reforms that are being proposed in legislation currently pending in Frankfort (the main component of which is a database to track loans) have always been supported, if not proposed by, the payday loan industry in other states, and are therefore no real reform or protection from them at all.
Payday lending is a complex issue, providing defenders of the industry a lot of ways to distort the truth to their own advantage. We would ask the reader to consider who has the greater motive for mistruth in this issue—the industry that collects $131 million in fees from citizens in our state each year, or those of us who are simply trying to bring some reasonable controls to this predatory practice and some badly needed protections to our citizens.The Rev. Keith Switzer
Mosaic United Methodist Church
Co-President, CLOUT Bishop Walter Jones
Baptized Pentecostal Church of Holiness