At a conference held today in Washington, D.C., a report including reccomendations for addressing the “culture of debt” was released.

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.”

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. 

Payday lenders are often asked what is the minimum fee they need to make a profit and stay in business. While this figure differs company by company and city by city, the payday loan product offered by Goodwill provides insight to the cost of offering payday loans. 

Prospera Credit Union, in partnership with Goodwill, a non-profit, tax-exempt charity, charges customers $9.90 per $100 borrowed (252% APR) for their “Good Money” payday loan. According to an article in the New York Times, the product is offered at a break-even rate with the fees going towards covering the losses due to bad loans and administrative costs.

To charge less than $9.90 per $100 (252% APR), GoodMoney would either have to lose money or fundraise to cover shortfalls or, as an alternative, offer their services only to those with better credit scores.

Allan Jones, CEO of Check into Cash, published a report on the costs of doing business.