David Martin, who owned a small payday lending business, wrote in to the Concord Monitor last weekend to share the consequences of the recent New Hampshire payday lending legislation: he lost his business. In response today, Cary Gladstone (who looks to be an employee of a non-profit organization) tells Mr. Martin and his customers to stop bellyaching:
To Mr. Martin’s customers who ask why his store is closing, an accurate response might be that he cannot run a lending operation profitably on 36 percent (or less) loans, as many other financing institutions are able to do.
Pray tell, which financial institutions are able provide small, short term loans for 36% APR? Payday Pundit would like an answer because that is a business plan that should be taught in all the major business schools and replicated throughout the country. Gladstone goes on to write:
Bank loans and credit cards at triple-digit rates would be the subject of investigation by regulatory bodies.
Really? Because a bank overdraft fee of $29 dollars on a $100 overdraft, paid back in a week, roughly works out to 1500% APR. Cary should probably alert Congress to get that investigation started.
This letter is rife with misunderstanding and myth about payday lenders — it is indicative of the ignorance that has led to short-sighted legislation and the loss of jobs and businesses of people in New Hampshire.
3 responses so far ↓
1 Jon Schultz // Jul 16, 2008 at 11:07 am
I think the industry needs to have a very clear statement that is repeated over and over again to critics for them to respond to. Something like:
It is a matter of simple mathematics which any schoolchild should be able to understand that small-dollar short-term loans cannot be made profitably at double-digit or very-low-triple-digit APRs. Double-digit interest rate caps simply ban the product.
The question then, is whether such loans have value for consumers who cannot borrow at a lower APR, as many people cannot. The answer lies in customer satisfaction surveys which consistently show that a large majority of people who have used payday loans view them favorably, as a useful financial option. And for some people a payday loan can be a lifesaver, saving families from eviction and working people from losing their jobs when their car breaks down and they need to get it repaired. To ban the product, and not let people decide for themselves whether it is a good choice for them in their particular situation, is nothing less than cold-hearted cruelty in the guise of consumer protection.
2 Jon Schultz // Jul 16, 2008 at 12:25 pm
P.S.
As a addendum to the above, people like “John” should see the October 2004 report, “The Cost of Providing Payday Loans in Canada,” which the reputable accounting firm Ernst & Young prepared at the request of the Canadian government. The report can be seen at:
http://www.cpla-acps.ca/english/reports/EYPaydayLoanReport.pdf
Of particular relevance is “Cost of providing payday loans” on Page 28 and “Why are payday loan costs so high compared to other forms of lending?” on Page 39.
3 John's critic // Jul 20, 2008 at 4:20 am
“John” wont read anything like that. It gives facts and isnt based off of what a couple irresponsible borrowers have to say.
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