A new study that says there are 1,638 payday lending stores in Ohio seems to be a very big story in the state. The above statistic, left out of every single story, is from this FDIC website that the Payday Pundit found in eight seconds.  You would have thought that at least one reporter would have found this to be an interesting comparison.  The industry has a good man in Ohio disputing this type of nonsense.  His quote is priceless:

“Daryl Dever, lobbyist for the Ohio Financial Services Association, dismissed the study as “more garbage, more junk.” He said it was natural that the industry has grown since it started in 1995 with no stores.

Dever dismissed the testers’ findings, calling them “third-party stuff. You can say anything you want to say.”

The report from staff researchers at the Federal Reserve Bank of New York is continuing to pick up steam. 

As states look at consumer credit issues it’s important that they look at the facts and carefully examine the real impacts of legislation.    The Federal Reserve staff study does just that and finds that one of the unintended effects of such legislation, which we see in states like Georgia and North Carolina, are increased credit problems for consumers.

To ignore what is already happening to individuals in states without payday lending and to continue on an assault on an industry which provides a better option for many in a short-term credit crunch is foolish and damaging to consumers.  Legislating payday loans into fee structures which are impossible to operate under extinguishes consumer choice.  We already see that individuals are forced to turn to more costly credit options when payday loans aren’t available.

The Open Markets Blog of the Competitive Enterprise Institute took note of this and posts on the report.  Kudos for highlighting this important piece of research. 

Virginia’s General Assembly has moved a payday advance bill to the desk of Gov. Tim Kaine that restricts consumer choice on when and how often consumers may have access to credit.  The measure, which Kaine has indicated he will sign, includes a complicated schedule of new loan applications and makes it illegal for a consumer to take out more than five loans in a 180 day period.

Jamie Fulner with payday advance company Advance America summed up the risk to consumers by pointing out how the new restrictions could force working families into more costly personal finance alternatives:

“If (consumers) decide that in a 180 day period that they need a sixth payday loan to help them bridge the gap between paychecks and that option is not available to them any longer then they may be force to turn to more expensive options such as bouncing a check or paying their overdraft protection fees or paying their bills late.”

The Federal Reserve Bank of New York has already conducted an in-depth study of the problems consumers face when payday advances are banned in certain states, and it’s not known how much pain the new restrictions will cause borrowers in Virginia.  But one thing’s for sure – the words of Judge Gideon J. Tucker never rang truer when, in 1866, he observed:

“No man’s life, liberty or property are safe while the legislature is in session.”

Amen to that, your honor. 

Payday lenders, employees and customers are testifying before the Colorado legislature in an effort to keep their livelihood and consumer finance options intact in the face of special interest groups that want to destroy the payday advance industry.  Some of the key points brought out in this Rocky Mountain News item include: 

          “Employees expressed concern about their jobs, while customers testified that the loans got them through tough times.” 

As the nation totters on the edge of a full-blown recession, should state legislatures really be adding to the problems of unemployment and fewer personal finance options?  You may recall a recent Federal Reserve Bank study that outlined the problems working Americans faced following previous payday advance bans, so why in the world would Colorado want to put its people through the same misery, which may well be even worse if the economy does slip into recession?

Then there’s this little chestnut the special interests like to toss around from time to time when people talk about destroying jobs and eliminating consumer choice by banning the payday advance industry:         

          ‘”Innovative businesses” and credit unions “would step into the void,” he (State Sen. Peter Groff) said.’

Right.  Payday Pundit has already exposed how one credit union plan in Pennsylvania forces customers to borrow more than they need to just so the lender can sock consumers with high loan interest fees while paying a veritable pittance in returns.  Meanwhile other bank fees are soaring.   

And by the way, why would a legislature want to create a marketplace “void,” in the first place?  This just doesn’t pass the smell test.

Between adding to unemployment woes, reducing consumer choice and forcing borrowers into higher priced alternatives, it’s no wonder the Rocky Mountain News has editorialized in favor of letting the payday advance industry remain in marketplace.

The Motley Fool picks up on the GAO report finding that, in 2006, consumers paid $36 billion in bank fees.  The Fool is highly critical of the government but also critical of consumers who don’t understand how much they’re paying in fees.  

How does this relate to payday lending?  Storefront payday lenders collected $6.5 billion in fees in 2006.  And payday lending customers understand exactly what they are paying per $100 for their two-week loan.  Members of CFSA are required to post their fees on poster-size displays in large type.

Yet, nobody is calling for a ban on banks.  

GAO: BANK FEES: Federal Banking Regulators Could Better Ensure That Consumers Have Required Disclosure Documents Prior to Opening Checking or Savings Accounts

From an article on Delaware online Sunday which quotes David K. Musto, a Finance Professor at the University of Pennsylvania’s Wharton school: 

 ”Three market conditions are associated with predatory lending, Musto and his colleagues found: There is little competition among lenders, property owners are sitting on lots of equity and borrowers are poorly informed about risks.”

The payday lending industy doesn’t meet even one of these three criteria.  The complete article is below.

http://www.delawareonline.com/apps/pbcs.dll/article?AID=/20080302/BUSINESS/803020380/1003/business

A new GAO report coming out on Monday details rising bank fees and lack of transparency in fee disclosure.  The report says overdraft protection fees increased 11% between 2000-2007.    Excepts from Sunday’s Washington Post story on the report:

“Banks are failing to provide consumers with information about fees on savings and checking accounts even though federal rules require such disclosures.”

“The GAO report says the percentage of income at banks and thrifts derived from    “noninterest sources,” which include fees, rose to 27 percent in 2006 from 24 percent in 2000. Increased consumer use of electronic payments, as well as increased marketing of automatic overdraft protection programs, are likely contributing to the trend, the report says.”   

In comparison, members of CFSA, the national trade association of payday lenders, are required to display their fees on poster-size displays in all story locations.

The Center for Consumer Freedom has a great letter to the editor in today’s USA Today responding to a recent editorial on payday lending.

“USA TODAY’s editorial on payday loans invoked the Federal Deposit Insurance Corp.’s (FDIC) stance in support of putting caps on these loans…But the FDIC’s own chairwoman authored a study in 2005 that painted a very different picture. Her report shows that payday loans can be a lower-cost option than bounced check or overdraft fees and that credit unions are sometimes not available as a reasonable alternative.”

Well said.

http://blogs.usatoday.com/oped/2008/02/keep-payday-loa.html

A new study says that payday lenders locate in communities with large Christian conservative populations. This on the heels of  prior allegations that payday lenders locate in communities with high populations of minorities, women, immigrants, the elderly, the poor, the middle-class and now conservative Christians. A recent BusinessWeek article even said payday lenders are now targeting more affluent neighborhoods.

Who’s left? This is preposterous.  

The only thing payday loan customers have in common is that they all have steady sources of income and bank accounts and sometimes have unexpected or unbudgeted expenses that require cash between paychecks.

While critics of the industry assign labels to payday lending customers in an attempt to further their political agendas, the fact is that payday lenders provide services to a broad cross section of Americans because there is a broad demand for the financial service provided. Payday lending customers represent a broad demographic segment and cannot be grouped based on race, sex or religion.

Full CFSA press release