ACCESS TO SMALL, SHORT-TERM LOANS CRITICAL FOR WORKING FAMILIES
Urban Institute report recommends better disclosures and increased competition to protect consumers

WASHINGTON, DC–A new report by the Urban Institute finds that if payday advances are eliminated they “could be replaced by alternatives that make families even worse off.”

 In “Enabling Families to Weather Emergencies and Develop the Role of Assets,” by Signe-Mary McKernan and Caroline Ratcliffe, the researchers find that low-income working families need access to small loans, such as payday advances, to help weather bad patches.

Instead of regulating prices charged on small, short-term loans, the authors argue that increasing competition will drive prices down. They express concern that regulating prices “would make fewer small, short-term loans available” and suggest that prices can be driven down, not by setting rates, but by “regulating disclosures; requiring licensing, reporting, and examinations; and creating incentives for financial institutions to provide small loan services.” 

 “The Urban Institute understands that eliminating payday advances is not in the best interest of working families,” said D. Lynn DeVault, president, Community Financial Services Association of America. “Its recommendations ensure that consumers would be aware of all of the fees associated with a credit product so they can compare their alternatives and make an educated decision based on what is best for them.”

Specific policy recommendations in the Urban Institute report:  

• Disclosures. Regulate standard, clear, and timely disclosures of the total loan cost so consumers know their full obligation and can easily compare what various lenders charge for loans…Stating the fee as a dollar amount instead of or in addition to the annual percentage rate (APR) may be easier for consumers to understand on short-term loans. 
• Longer-Term Products. Develop a longer-term loan product for habitual users—those who rely on short-term loans frequently or for long periods—is needed. Regulating disclosures and creating incentives for traditional financial institutions to provide small loans would create this product de facto.

Highlights available at http://www.cfsa.net/FullDisclosures.html.

Consumers Denied Choice, Jobs Threatened as Ohio Senate Votes to Ban Payday Lending

Legislators Play Politics, Ignore Tens of Thousands of Ohioans 

Washington, D.C. – Ignoring the pleas of tens of thousands of customers and employees, Ohio Legislators chose instead to vote today to ban payday lending in Ohio, said the Community Financial Services Association of America.

Expressing outrage over today’s Senate vote, D. Lynn DeVault, CFSA president, said “There was absolutely no public clamor for this legislation. In fact, tens of thousands of payday lending employees and customers were ignored by legislators, who listened only to the editorial writers and elitist consumer groups.”

HB 545, which passed the House two weeks ago, places a 28% annual percentage rate cap on payday loans, reducing the allowable fees to less than 10 cents per day.  

“Operating under HB 545 is not economically feasible,” said DeVault. “Our member companies say they expect stores to close and jobs to be lost.”

DeVault said the Senate has asked lending companies to create a new business model that would allow them to continue making small-denomination, short-term loans available in Ohio. “Companies are doing their due diligence to see what options may be available under current law,” said DeVault, “But we are not hopeful. If companies are forced to operate under HB 545, they cannot. 

“Ohio’s Legislators do not understand the impact of what they have done,” says DeVault. “Our industry worked with lawmakers in good faith to forge a compromise that would protect consumers and preserve their access to credit.  We now appeal to Governor Strickland to do anything he can to lessen the human impact of this over-zealous action.”  

 Independent research has shown that without the option of payday lending, consumers bounced more checks, filed for more bankruptcies, did not pay bills and even choose such dangerous options such as forgoing prescription medications. 

A recent Zogby survey found 84% of likely voters in Ohio believe citizens should be free to make their own decisions about what kind of credit they can use, and 70% said the government should not be in the business of telling adults they cannot get a payday loan.

“Unfortunately, legislators did not listen to consumers surveyed in the poll, nor to employees begging for their jobs or customers asking where they would turn without payday loans,” said DeVault.   

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CFSA President D. Lynn DeVault had this to say in a press release:

“While the intentions are good, the recommendations in the report demonstrate the complexity of small-dollar, short-term credit offerings and their costs.  So-called ‘solutions’ such as annual rate caps would eliminate not only payday lenders, but also the model credit union alternatives described in the report as well.”

“Those who don’t understand a free-market think you can wave a magic wand and new services and products are created. The truth is, payday lenders already compete with banks, credit unions and other financial services. The market is driving the price down to its lowest cost. Knee-jerk reactions, such as imposing annual interest rate caps, eliminate services, reduce competition and restrict consumer choice.

Pointing out the contradictions in the report, DeVault refers to two of the report’s recommendations: build new thrift institutions and reform laws to impose 36% APR caps on all loans.

The GoodMoney payday loan (listed as a model payday loan alternative in the report) comes with a fee of $9.90 per $100 borrowed for the two-week period, equating to a 252% APR. DeVault says, “”Even the ‘model’ payday loan alternative could not be offered under the annual interest rate cap they are advocating.”

With soundbites from D. Lynn DeVault (CFSA president), Jamie Frauenberg (Checksmart Sr VP), Karen Findlay (Advance America employee), Senators Bob Schuler and Joy Padgett as well as those who want to ban the industry, Cohen presents a balanced piece on the  debate in Ohio.  Thanks to Cohen for taking the time to attend the rally and speak to those most impacted by the proposed ban. Journalism as it should be.

“While it’s become fashionable to blame payday lenders for all of society’s ills, it is preposterous and irresponsible to blame a $300 loan for the nation’s mortgage crisis.”

There are plenty of good, fact-based explanations of why this nation is facing a tough economic road ahead.  Here is an excellent one from the NewsHour on PBS that uses an interesting technique to explain the mortgage crisis.  But no one (not even the Center for Responsible Lending–before this Reuters story that is) has asserted that payday loans have anything to do with the mortgage meltdown.

Interviews for Ms.  DeVault can be arranged by calling Steven Schlein or Lyndsey Medsker at 202-296-0263.