In response to an article that ran last weekend, Mr. Hunter said this:

“The News used the loaded word “predatory” to describe the short-term lending industry and said lenders “force people who are least able to pay into a cycle of debt.”

For years, the industry has been trying to determine why anyone, particularly well-educated and worldly journalists, would have this unfounded impression the short-term lending industry is exploitative in any way. Perhaps this perception remains from the years before the passing of the 2003 state law that regulates the payday loan industry and protects consumers from cyclical debt.

Before that time, there were some “loan sharks” out there who did, in fact, live up to the reputation the industry can’t seem to shake. This misperception might also stem from media reports over the years stirred up by industry opponents using PR tactics to further their political agenda.

But here’s the punch line: It’s just not true. In this case, perception is not reality. The reality is that hardworking Alabamians occasionally need to borrow a couple hundred dollars to serve an urgent need. They are more than willing to pay the one-time fee of 17.5 percent the law allows to borrow that money.

I challenge the members of the City Council and The News to walk into any payday loan store in Birmingham and talk to a few customers. Take out a loan, perhaps. Don’t just believe what you read or what you hear. Find out from real people who use our products. I think you’ll be surprised by the truth.”

And we just wanted to applaud you.

There’s no doubt that less access to legitimate, regulated loans will drive consumers to unscrupulous offshore providers that are in effect, beyond the legal reach of U.S. authorities. A proliferation of online pharmacies portends the future of short-term loans if consumers lack state-based, regulated credit options.

A 60 Minutes’ nine-month investigation called “The difficult fight against counterfeit drugs,” which aired March 10, 2011, detailed how counterfeit prescription drugs manufactured outside of the United States were sold through “rogue internet sites, often posing as legitimate pharmacies.” According to the report, “Thirty-six million Americans are estimated to have bought their medicines from these sites, many searching for quality drugs at a better price. Some sites pretend to be from Canada because Canada is known for safe, inexpensive medicines.”

CFSA believes that appropriate state regulations provide strong protections for consumers, while ensuring continued access to choices for short-term credit needs. That same principle should apply in cyberspace. Customers who choose to get a payday advance online should not forfeit any of the protections they would receive from a regulated, store-front lender.

“The fact remains that for the many years that I sat on this committee and considered bills concerning payday lending, the bottom line is we ask DFI every year for the number of complaints they received. There were none, none. Repeatedly year after year we could find no evidence of complaints [through] DFI. Now that has certainly changed in the last year, because now DFI reports that the Washington law that limits eight payday loans per year, now they’re turning to unlicensed Internet payday lenders and here are the complaints. Hundreds of them. Not one before the law, now all of these after the law. … Now I would rather have my constituents doing business with a licensed regulated entity that DFI can control. But we have no way of regulating out of state or out of country [lenders].”

Several stories this week have surfaced on this issue, and for a Friday we thought you might want to watch some video coverage. As mentioned in the story, the latest report out of the DFI in Washington shows that, of the licensed entities of which the DFI tracks, consumers paid $122 million dollars less in payday loan fees than they did in 2009. But what we want to know is whether or not these numbers include unregulated entities? Does the DFI accurately portray the full lending picture in Washington?

Such restrictions on payday lending would merely force consumers to use higher cost providers, some of which are unregulated and unlicensed. In the wake of the Washington state restriction, some regulators and legislators said that they have seen an increase in consumers turning to unlicensed and unregulated lenders who may operate beyond the reach of state regulators.

Unlicensed lenders are not accountable to the state either through state examination or compliance standards. DFI’s enforcement chief said that even if the agency can get a subpoena to go after an illegal lender, it’s difficult to get a response and difficult to enforce the subpoena because the lender is either out of state or in another country.[1]

Today, payday advance stores fill an important need for small dollar, short-term credit for banked, working Americans in communities throughout the country. Millions of customers across the country have used payday advances responsibly and appreciate having somewhere to turn when they need quick access to credit. Analysts estimate payday advances are used by 19 million American households.

We strongly encourage consumers who need access to credit to do business with CFSA members who are required to be licensed and regulated. A member that offers payday advances through the Internet must be licensed in the state where the payday advance customer resides.

As an example, in October, 2010, the Washington State Department of Financial Institutions (DFI) warned consumers of the danger of unlicensed payday lenders.

“When a consumer takes a loan from an unlicensed lender, there is very little we can do to protect them, and often little we can do to the company if they don’t adhere to our laws, especially if they are located outside of the United States.”

As a reminder on CFSA Best Practices:

• CFSA members always provide the most transparent application forms and fee descriptions. We strongly support applying these to all other short-term lenders, both bank and nonbank.

• Members are required to disclose the cost of the service fee in both dollar amount and as an APR on loan documents and informational brochures. In addition, members must post fees in large type on posters in all store locations to ensure that customers know, in simple terms, exactly what the fees are before, not after, they enter into a transaction.

Your article described short-term loan customers as those “without access to other credit.” But when facing such a shortfall, consumers say they consider the pros and cons of credit cards, overdraft programs, and cash advances from banks, credit unions, and retail lenders.

They also weigh the costs and consequences associated with missing bill payments or submitting them late.

Consumers thrive in a competitive, regulated financial services environment. The Mississippi Legislature approved meaningful reforms last year, preserving access to a variety of regulated options and implementing consumer safeguards. That was step in the right direction. But we must continue to ensure that consumers are equipped with all of the information they need to compare services and make informed choices.

“This is an expensive form of credit that is designed to be a short-term loan,” Messick said. “We don’t want them to use this to try and solve their long-term financial situation.”

“There is a growing need for access to short-term credit,” said Jaime Fulmer, an Advance America spokesman. “Credit unions and banks offering short-term loans is a reflection of consumer demand.”

Truth is, though, that they’ve been offering direct deposit advances for quite some time (and Wells Fargo isn’t the only one).

“We have been offering these loans for a while,” said Richele Messick, a Wells Fargo spokeswoman. “To be eligible, you have to be an established Wells Fargo checking customer with recurring direct deposit or a tax refund.”

“Removing installment loans as an option for borrowers will force them to look to black market sources or unregulated Internet lenders for the money they need. This must not happen. If Missouri must deal with payday lenders, it must do so in a significantly more targeted way.”