Must read of the day
February 19, 2010 | federal legislation, industry, positive media coverage | Comments (0)What caused the financial crisis? Not complex loans according Professor Todd Zywicki of George Mason University. From the Wall Street Journal oped:
Regulatory reform that can improve competition and consumer choice in financial services is long overdue. But no new federal bureaucracy such as the Obama administration’s proposed Consumer Financial Protection Agency (CFPA) is needed to bring that about.
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So the problem isn’t consumer gullibility or ignorance. Borrowers have shown they understand, and act on, the incentives they face all too well.
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Thus a lender’s elimination of universal default will have to be offset by higher interest rates or fees. To the extent that a CFPA makes access to credit cards less available, excluded borrowers will inevitably shift to more expensive alternatives such as payday lending or pawn shops. If the CFPA were to impose bans on efficient risk-based pricing by lenders in the name of vague claims about “fairness,” the likely result will be to increase overall risk and make the next financial crisis more likely.
A good read
January 22, 2010 | industry, positive media coverage, research | Comments (0)Thomas Sowell, the free market economist, thinker, educator and columnist, has a new book out, “Intellectuals and Society.” There’s a wonderful section that defends payday lending and other services that represent private sector solutions to the needs of working Americans. You can get Sowell’s book here.
And here’s a column from last April that Sowell wrote in defense of payday lending.
“A needed service”
January 19, 2010 | New Hampshire, industry, positive media coverage | Comments (0)A Center for Consumer Freedom letter in today’s Eagle Tribune (N.H.):
Short-term “payday” lenders have been under attack by state and federal lawmakers who denounce their services as “predatory.” But across the country, borrowers in need of emergency cash choose these loans willingly, over other financial options. Research by a Federal Reserve economist found that 88 percent of short-term borrowers are satisfied with their loans.
Don’t take this advice
January 16, 2010 | positive media coverage | Comments (0)Investopedia lists the best ways to “waste your money.”
“Elitist politicians”
January 14, 2010 | Missouri, industry, positive media coverage | Comments (0)Center for Consumer Freedom responds to an article in the Columbia (MO) Tribune:
A recent study found short-term lenders’ average profit before taxes is $1.37 per $100 loaned. Imposing unrealistic fee caps on payday loans to kill the industry will leave consumers — already struggling in today’s economy — without vital access to short-term credit. It would be shortsighted and elitist for politicians to make snap judgments about financial services they’ve never needed themselves and to prohibit financial options without thought of the consequences.
“Keep consumer credit options open”
January 13, 2010 | Arizona, industry, positive media coverage, states | Comments (0)Great piece in the Arizona Republic by a diverse group of authors from the middle, left & right: Grant Woods, attorney and former Arizona attorney general; Luis Ibarra, president and CEO of Friendly House, a social service agency; and, Steve Voeller, president of the Arizona Free Enterprise Club. The whole piece is a great read but here’s a couple of my favorite paragraphs:
Short-term loans are not for everyone, but every day in Arizona, thousands of hardworking people use short-term consumer-finance options to meet unexpected financial challenges and pay bills, buy groceries or gas, or to avoid more expensive bounced-check fees, overdraft fees and late-bill-payment penalties. Allowing the industry to sunset will exacerbate short-term consumer credit problems by pushing consumers into even less-desirable credit products, including off-shore online loans and neighborhood loan sharking. Eliminating the product does not eliminate the demand.
Does the industry need some reforms? Yes. New consumer protections that address the cycle of debt that too many people fall into are improvements to last year’s failed initiative.
Correlation is not causation
January 12, 2010 | industry, positive media coverage, research | Comments (0)Econ4U takes on an anti-payday lending “study”:
An unfortunate example of this error appeared recently in a magazine called The American Banker. Two sociology professors from George Washington University (GWU) took to the opinion page to promote a recent study which claims an increase in the concentration of payday lending stores causes an increase in violent crime.
The big problem with such a broad claim is that the study in question finds correlation between payday lenders and violent crime, not causation. This kind of academic overreach is not only irresponsible – it’s also dangerous. Strong conclusions based on faulty logic could cause policymakers to take rash actions with harmful unintended consequences for the poorest among us.
Payday math
January 11, 2010 | Virginia, industry, positive media coverage | Comments (0)From a Center for Consumer Freedom letter in the Virginian Pilot:
Gov. Tim Kaine’s approach to payday loans (‘Short-term loan program shows promise,’ Hampton Roads , Jan. 2) does not show an understanding of how these short-term loans actually work. In addition, Kaine’s plan does not provide an adequate solution to consumers’ increasing demand for credit options.
Kaine misleads readers when explaining payday loans. A typical short-term payday loan would have to be rolled over 26 times (every two weeks for a year) to achieve the excessive interest rate he claims. Short-term payday loans are meant to be just that, short-term.
That’s the key point. Customers don’t pay an annual interest rate because it’s a tw0-week loan, not an annual loan.
Holding columnists accountable
December 17, 2009 | Missouri, industry, local issues, positive media coverage | Comments (0)Jamie Fulmer of Advance America takes issue with a recent column in The Missourian. From Fulmer’s letter:
We post our rates and fees prominently on the walls of all our stores and our agreement documents fully outline the terms of the transaction. Customers tell us that they choose payday loans, in part, because they are simple, reliable and transparent.
Of our customers, Mr. Jarvis alleged that “nearly all felt misled or abused.” Wrong.
A recent study from the George Washington University School of Business concluded that payday-advance borrowers make informed choices. About half of those surveyed had considered other credit alternatives — such as bank or credit card services or personal loans — before taking out a payday advance. Many (over 80 percent) chose a payday advance to avoid expensive checking account overdraft fees and nearly all (90 percent) said they were satisfied with their transactions.
Many journalists or columnists who write about payday lending have never even visited a store.
Banks can’t compete
December 14, 2009 | industry, positive media coverage | Comments (0)From CFSA’s D. Lynn DeVault in a letter to the Cape Cod Times:
To try to meet that demand, the FDIC launched a program to develop payday lending alternatives. While touted as a success, the products offered have different terms and different price structures than payday loans and are in limited demand. Banks simply cannot offer traditional payday loans profitably to their customers.
The FDIC mistakenly characterizes as “underbanked” any household that has a bank account but used an alternative financial service, such as a payday loan. Findings show that customers use payday loans for multiple reasons, including convenience. Just because adults with bank accounts choose to use an alternative financial service does not necessarily mean they are being underserved by their bank or are “underbanked.”
