Flawed and Misleading Payday
Press Reports From December 2, 2006
these stories are not directly related to title lending most of our
members make payday loans and from the public and the press
perspective there is not much difference between the two.
These types of articles effect both industries equally bad.
Here are the articles:
A series of misleading news articles appeared in the press around
December 2, 2006. It turns out the source for the articles is
Center for Responsible Lending (CRL). Minimal research
shows CRL to be a consumer organization with most of their
leadership noted for supporting highly liberal causes.
What is so amazing is no local industry source was asked to respond
to these articles for accuracy or opinion! Actually, if you
look at the quotes from the press coverage all but one of the quotes
was from CRL and their friends (Julian Bond, NAACP and Consumer
Federation of America). So much for fair and accurate
It turns out that
Community Financial Services Association (CFSA), a payday
advance trade association, responded with a factual and excellent
rebuttal. As you might expect, the response received virtually
no press coverage. You should read the CFSA response (go
here for a condensed version). Their response debunks the
propaganda and flawed studies from CRL and the press.
Here are the primary points of the CRL based news articles:
Alabama consumers spend $225M in extra fees for payday loans
Payday loans sink borrowers into hopeless debt by locking them
Typical borrower pays back $793 for a $325 loan
Industry preys on low-income minorities
Here are important industry facts and estimates that for the most part
There are approximately 1200 payday lenders in
Alabama who are licensed, approved and audited for compliance by
the State. On this fact we agree. Of
course none of the press coverage mentioned the fact the
industry is monitored and highly regulated by state agencies.
The average consumer payday advance loan is
$325. This is most likely an accurate number
from CRL and the press.
The number of outstanding loans statewide is
estimated to be less than 160,000
The CRL reports a number of over 1,400,000,000 transactions
which is flawed and highly misleading.
Less than 4% of the population in Alabama has an
outstanding payday loan
(based on calculations from above). A fact not
mentioned by CRL or the press. See NBC news data
here for more.
There is absolutely no evidence that the 4% of
the population who use payday advance are minorities who are out
of proportion to the local population.
Payday advance borrowers spend less than $2.35
a day for this service
Where is the social impact?
A $17.50 fee for a $100
payday advance (many companies charge less) compares to fees on
other competing financial transactions as follows:
$26.90 fee for $100
in overdraft protection
$37.00 fee on a $100
late credit card bill
$46.16 fee for a late
reconnect fee on a $100 utility bill
$54.04 fee for a
bounced check from the bank and merchant
What is the prudent choice when
confronted with one of the choices above? Should you pay
$17.50 for a payday advance loan or $54.04 for a bounced check?
We think we know the correct answer. Again, this is a
point totally ignored by CRL and the press. (This
the CFSA report.)
In closing, the payday advance industry has grown dramatically over the last five
years. There is a reason -- it fills a high demand market need. To
our knowledge no one has ever been forced into a payday loan
transaction against their will. It is a choice that an individual makes based on
full disclosure (which is a significant part of the state regulation). The
overwhelming majority of borrowers are happy with the service as
noted by the number of consumer complaints at the State Banking
Department and even the one-sided
NBC poll mentioned here.
It is not uncommon for customers to express their heartfelt and
sincere gratitude for help when they have nowhere else to turn.
Payday loans have helped many in dire emergencies when there were just no
other alternatives and our customers often tell us so.
We do not understand why the press and groups like CRL want to
distort the facts to further their own cause. If they were
held to the same disclosure and regulation laws as our industry,
they would be in serious legal trouble. Non compliance for
accurate disclosure in our industry brings quite severe penalties
for the offender. And throughout all of their misleading
attacks they never present a realistic alternative for
our customers and the industry they are so intent on demeaning.
From these articles it is quite evident that this study and the report
from the press totally ignore the real facts. There is clearly
injustice here -- but who is the target?