Click here to read the full transcript. 

Thanks to Seany for the tip.

Ohio’s Coalition for Responsible Lending (”OCRL”) has issued a press release filled with deceptive information and fabrications. They should be held accountable and asked to back up their irresponsible claims with facts. It is important that people see through the hype surrounding the issue and consider the facts.

CRL Claims: A “compromise” is threatening the payday lending legislation and “outraging” advocates.

• The Truth: The industry has not put forward language for a compromise bill, but has talked to legislators that are interested in preserving some version of small loan choice for consumers and not putting thousands of people out of work. Our goal has always been to be part of a solution that addresses the concerns of policymakers and provides responsible protections for consumers. This type of scaremongering by OCRL underscores the fact that they do not want to help consumers. They refuse to support legislation that would actually help consumers by addressing issues such as cycle-of-debt. Their goal is not reform, it is an outright ban.

CRL Claims: The industry tapped into an almost never-used provision in Ohio Revised Code that allows credit unions to charge fees of $10 per $100 on top of the 18% APR allowed. Credit unions never took advantage of the provision because it was predatory.

• The Truth: This is misleading. Credit Unions asked for the provision in HB 81, sponsored by Geoff Smith and enacted in April 2006. In fact, the two credit union alternatives frequently referenced by the Bill Faith and OCRL charge more for a first time borrower than payday loan companies do.

For example:

The “Stretch Pay” payday loan alternative, offered by credit unions across Ohio and championed by OCRL and others as a better choice for consumers, comes with an 18% APR plus an annual fee of $35 (for a $100 advance) or $70 (for a $500 advance).

“Grace” Payday Loan offered by Faith Community United Credit Union- Cuyahoga County, OH is 17% APR plus a $15 application fee per loan.

CRL Claims: The industry wants borrowers to pay for industry’s taxes

• The Truth: Like any other product ot service, the costs associated with providing a payday loan dictates the pricing for consumers. Due to their not-for-profit status, credit unions are exempt from federal and state income taxes. And they do not have to pursue a profit. They are, therefore, able to offer payday loan alternatives at break-even or less. Credit Unions do not have the resources or the infrastructure to handle the loan volume after payday lenders leave. In order to continue offering payday loans in Ohio, for-profit payday lenders would need to not only break-even, but pay taxes and make a reasonable profit. The industry welcomes credit unions and any other financial service providers into this market. We believe consumers should have more choices, not fewer, and select the one that best suits their needs.

CRL Claims: First-time emergency borrowers would pay 469% APR…Currently, payday lenders charge $15 per $100, or 391% APR.

• The Truth: The numbers don’t add up. The fee per $100 will go down from $15 to $10.00, the truth is that the only additional fees discussed were for tax liability obligations, but CRL claims the APR will go up from 391% to 469%. This is blatantly false.

From an interesting blog called Necessary Roughness, not only the blog post itself, but the comments following the post are worth the read. Intelligent people debating the merits of credit, without all of the hype.  We need more of that. An excerpt:

Payday loans are a risky business. If a customer is demanding a payday loan, the risk that customer may not pay back the money is phenomenally greater than the person who can pay for a car in cash. The payday creditor must make money from other loans to cover the losses on loans that default. The market currently exists because some people can pay those loans at those interest rates. If the interest rate is capped below a point where the creditor makes money, the creditor will have to get funds elsewhere or go out of business.

One comment asks the question, “what if instead of setting a maximum interest rate, the state legislature instead passed a law that only required the lenders to report in big letters the annualized interest rate for the loan, or something that would insure that the putative debtors truly understood the cost of what they were getting into?”  The Payday Pundit wants the commenter to know that members of CFSA, the national payday lending trade association, are required to post their fees (in both dollars and APR) in large font on poster-size displays in all stores.  Read more on the industry’s fee transparency at www.knowyourfee.org.

An entertaining column in the Monroe News from Charles Slat shows that some writers do understand the payday lending service.  Mr. Slat - we applaud you.

Let’s face it, there are a lot of people… who don’t have… a friend or a supportive family member close by. They also usually can’t go to a bank and get a small loan. A lot of them might not have a bank account or, if they do, they don’t have enough in it to cover a small loan and fewer banks want to be bothered with making such small loans anyway.

So payday loan companies might fill the void for those who find themselves friend-less or bank-less or otherwise facing a pressing financial need. That might be why about a half dozen exist in the Monroe area alone. Not long ago, there were none.

The Community Financial Services Association, a trade group, represents about half of the estimated 22,000 payday lenders in the nation. Despite being under constant attack, primarily from well-meaning legislators, it argues that the industry is needed.

Earlier this month, for example, the Ohio House passed a bill that would lower the maximum that payday lenders could loan and cut to 28 percent APR the maximum interest rate that could be charged. Payday loan companies say this kind of legislation, if adopted, could screw up the whole industry, put people out of work and hurt the very consumers legislators hope to help.

Excerpts don’t capture the piece, so we recommend visiting the site for the complete column.

In her latest column, Michelle Singeltary of the Washington Post writes about a new initiative encouraging Americans to be thrifty and save.

Note that one of the recomendations listed in her column is to “Encourage financial institutions to locate in low- to moderate-income neighborhoods and provide low-interest consumer loans. For example, in Appleton, Wis., the Prospera Credit Union has teamed up with Goodwill Industries of North Central Wisconsin to create GoodMoney, where consumers can get short-term loans much cheaper than they can get from a payday lender.”

Payday Pundit wants to point out that the Goodwill/Prospera credit union ( non-profit, tax-expempt) charge $9.90 per $100 borrowed (252% APR) for their “Good Money” payday loan.  And this is only to break even.  

Even the Goodwill payday loan alternative could not be offered under the rate caps being proposed in states like Ohio. 

Saul W. Adelman, Associate professor of finance at Miami University  in Oxford, Ohio has this to say in a letter to the Columbus Dispatch.

Ohio House Bill 545, which is headed for debate in the Ohio Senate, should not be approved. This bill, which would cap the annual interest rate for payday loans at 28 percent, supposedly would help individuals who opt to use payday-loan services. This is a populist bill that ignores reality and would result in the opposite happening.

This weekend story from the Chicago Tribune on Internet lending drew a sharp rebuke from NewsBusters, a media watchdog group.  NewBusters story begins:

The risks and benefits of so-called payday lending are certainly worthwhile of media coverage, and genuine instances of fraud or exploitation are and should be fodder for criticism in the print media. But it helps when your highlighted victim actually has good credit to start with and/or isn’t consistently turning to Internet loans to supplement income.

The rest of NewsBusters piece is here.

While they are in no way a fan payday lending, the editorial writers ”do not favor a ban on the operations.” They write:

For some people in need of quick cash this may be their only option, especially if they have bad credit. Should they be denied the ability to make this choice? No, people ought to have the right to make their own decisions on this matter.

They also state their “support for requirements for full disclosure in plain language of the consequences.”

Sunday’s editorial in the New Hampshire Union Leader asks, “What, if anything, is the governor going to do for the 200 private-sector workers he personally will make jobless at the start of next year?”

A few excerpts:

That’s the headline from a weekend story in the Hudson Hub Times.  From the piece: 

Opponents believe the bill will have a devastating effect on the payday loan industry, likely closing locations and costing 6,000-plus Ohioans their livelihood.

They also question where people strapped for cash and facing emergencies would go for smaller, short-term loans.