“Ridiculous”
January 17, 2009 | Tennessee, industry, media coverage, regulation, states | Comments (0)That’s a quote from Steven Schlein, spokesperson for the Community Financial Services Association of America, in response to the notion that payday lending causes bankruptcy. From the story in the The Tennessean:
Tennessee routinely ranks near the top nationally in terms of the number of bankruptcy filings per capita, but there is disagreement among other economists over whether payday loans lead to bankruptcy.
Brian Melzer, a senior lecturer at the Kellogg School of Management at Northwestern University, found that access to payday loans among people making between $15,000 and $50,000 in income increases the difficulty of paying bills by 25 percent compared with those who didn’t have payday lenders nearby.
However, Donald Morgan, a researcher with the Federal Reserve Bank of New York, and Michael Strain found that households in Georgia and North Carolina, which have effectively banned payday loans, bounced more checks and filed for Chapter 7 bankruptcy at a higher rate than households in states that did have access to the industry.
The industry argument is that payday lenders provide a cheaper short-term solution than the alternatives — high overdraft fees from banks that can average $27, or excessive late payments from credit card companies and utilities.
With overdraft, “people are paying $27 to borrow $36, versus a customer who comes in and borrows $100 from us, they pay $17.65,” said Check ‘N Go spokesman Jeff Kursman. “What’s a better bargain?”
Steven Schlein, a spokesman for industry group the Community Financial Services Association, said there is no correlation between payday lenders and bankruptcy. “To say one or the other caused bankruptcy is absolutely ridiculous,” he said.
It’s more likely that some people heading toward bankruptcy try to fend it off by taking out payday loans but only postpone the inevitable.
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