Quoting an article that ran in The Daily Texan today that used targeting in its lede in for the report: “… astutely recognized lenders’ predatory nature on working-class and financially inexperienced Austinites.”

Just a point of clarification, as this statement is misleading. CFSA members do not target certain demographics. Our members are located in population centers, and in convenient locations where customers live, work, and shop. As brick and mortar lenders, CFSA members are part of the neighborhoods they serve and are sensitive to the needs and concerns of our customers.

Let’s not forget that our service provides access to credit to more than 19 million banked customers across the United States who choose our product to meet their small-dollar, short term needs. Research shows that payday advance customers generally come from moderate income, working families, with most customers earning between $25,000 and $50,000 annually. Payday advance customers are educated; 90 percent have a high school diploma or better, with 54 percent having some college education or a degree. For more information on demographics, click here.

Just tryin’ to keep it real.

It’s Friday, and what better way to spend your day than chiming in on why access to short-term credit is so important. We’re happy to see that even our critics read our blog, and as you can tell by this post–they’ve chimed in. And we want our supporters to chime in too! Click here to see the comments on a recent post, and tell the Payday Pundit why the payday advance should be available to millions of hard-working Americans who understand and appreciate the service.

We couldn’t help ourselves, and had to submit our Board Chair’s last paragraph in her letter to the editor as our quote of the day:

“…it has been suggested that a 36 percent APR cap on payday advances would benefit consumers – but that is simply not the case. Such a restriction would serve to eliminate a product for which consumers have great demand and at a time when they can least afford to lose access to short-term credit. As we have seen in other states, when access to licensed and regulated payday loans is restricted, consumers often will turn to illegal and unregulated service providers for their credit needs.”

Our Board Chair D. Lynn DeVault issued a letter to the editor of the New Orleans Times-Picayune today commenting on the editorial provided by Edward Ashworth.

Here are a few key highlights from her letter (to read the letter in its entirety, click here):

Contrary to what Mr. Ashworth suggests, the payday advance industry is currently subject to a high level of regulation and oversight in the State of Louisiana. Where payday lending occurs, each state – including Louisiana through its Office of Financial Institutions (OFI) – has thorough licensing, regulation, and enforcement processes that govern payday advance companies. Additionally, Louisiana provides statutory limits on payday advance renewals, contrary to one of the main points of focus of the article.

…

Given the existing state law, as well as important industry requirements, it is not surprising that the Louisiana OFI received only 20 consumer complaints in all of 2009 regarding the payday advance industry. This incredibly low number of consumer complaints certainly calls into question Mr. Ashworth’s criticism about the OFI’s failure to “publicize the number and nature of complaints.”

Gotta love it when critics compare payday loans to the Big Mac. In their eyes, a Big Mac can make you morbidly obese, causing you health problems and eventually leading to heart disease. Sure, when eating them excessively this may be true—but let’s not forget that a consumer has the choice to eat as many Big Macs as they want. And most dieticians would tell you that moderation is key to living a healthy lifestyle.

While Edward Ashworth, the guest columnist who wrote the op-ed that ran on NOLA.com, talks of APR and the “sky-high” fees that consumers pay when using a payday advance, what he’s forgetting to acknowledge are the responsible lenders—like CFSA members—who encourage responsible use of payday advances and provide clear and transparent product information so that customers can make informed decisions.

Here is Best Practice #1 that CFSA Members must adhere to:

“A member will comply with the disclosure requirements of the state in which the payday advance office is located and with federal disclosure requirements including the Federal Truth in Lending Act. A contract between a member and the customer must fully outline the terms of the payday advance transaction. Members agree to disclose the cost of the service fee both as a dollar amount and as an annual percentage rate (“APR”). A member, in compliance with CFSA guidelines where they do not conflict with applicable federal, state or local requirements, will further ensure full disclosure by making rates clearly visible to customers before they enter into the transaction process.”

The reality is that making ends meet is often a struggle, but the idea that it can all be cured if payday loans were eliminated is far from the truth. The fact of the matter is consumers are looking for greater convenience and less cost. There are many financial service providers offering short-term credit products, competing for consumers’ business—from banks, credit unions, payday lenders, and the like. In fact, some of the options are more expensive than payday loans. According to a study conducted by Pew Health Group’s Safe Checking in the Electronic Age, if an overdraft was treated like a short-term loan, with a repayment period of seven days, the APR for a typical incidence would be over 5,000 percent. Another interesting fact: The median amount a customer can be charged per day in overdraft fees is $140. In addition, Americans are estimated to spend $38 billion on overdraft fees in 2011, an all-time high, according to Moebs Services. And that’s not even getting to disclosures. While payday loan agreements are typically one to two pages, Pew found the median number of pages for a checking account disclosure is 111 pages.

So what’s more important: Access or information? We say both.

Consumers need access to information and options to help them cope with their individual circumstances. In the end, it should be informed consumers who decide what works for them, whether it’s going to a bank or credit union,  utilizing a check cashing service, going the way of the prepaid card, or opting into a payday advance.

There’s no question that Americans are coming up short, struggling to make ends meet for several months at a time. It was just reported that 64 percent of Americans would utilize a source other than their savings account to satisfy a $1,000 unplanned expense. The survey also revealed that to resolve the problem, 17 percent of respondents indicated they would borrow the money from friends or family. That National Foundation for Credit Counseling’s release said that “asking those close to you for a loan can be awkward, and potentially negatively impact the relationship. Further, it can lead to “serial borrowing,” with the borrower always leaning on someone else to solve his or her financial problems.”

The bottom line is that if credit options were regulated out of existence or severely restricted, people would still come up short from time to time. If you eliminate access to one product, consumers will seek out another. And research shows it will likely be a more expensive and credit-damaging option.

American Forces Press Service put a story out yesterday touting Military Line, an organization “protecting servicemembers and their families from financial pitfalls such as payday lenders,” the article says. The program’s mission, according to Brenda Linnington, director of the Better Business Bureau Military Line, is to increase military members’ financial literacy through information, education, and outreach — both online and on the ground.

“I’d like Military Line to serve as a bridge between the civilian and military communities,” said Linnington, an Army veteran and the wife of an active-duty Army officer. She took on the job in January after the former director, Holly Petraeus, left to head the Consumer Financial Protection Bureau’s Office of Servicemember Affairs.

Just as a reminder, in response to articles earlier in the year, CFSA put out the following statement: “We are surprised to learn that military financial counselors are reporting that some payday lenders may be making loans in violation of the terms and rates imposed by law. We are certain that no reputable payday lenders, especially among the 50 percent of the industry represented by this association, make illegal loans.”

CFSA member companies do not market or provide two-week payday advance loans to the military.

KQED’s My Life Is True series (a radio station backed by NPR) has posted a real-life payday customer experience who says he was stuck in a cycle of debt.

We want to let consumers know that by doing business with a CFSA Member they are protected by our association’s Best Practices. Customers who cannot pay back their loans when they are due have the option of entering into an extended payment plan, allowing them to repay their loans over a period of additional weeks. This option is provided to customers for any reason and at no additional cost to the borrower. This is the only financial product that allows consumers to create their own terms should they not be able to pay back their obligation in time of the original agreement. We hope that more customers will do business with CFSA Members, and also know that they have the right to let us know when CFSA Members are not complying with the association’s Best Practices. You can do that by going here and filling out an online complaint form. If you’re a customer and have questions, e-mail us at LoanQuestions@CFSAA.com.

A recent Wall Street Journal article is reporting that some small and regional U.S. banks are prohibiting unhappy customers from taking their complaints to court or joining class-action lawsuits. Instead, financial institutions are requiring them to resolve disputes through arbitration, a process that may not be in the best interest of consumers. A few key highlights from the article:

The Dodd-Frank financial-overhaul law requires the newly formed Consumer Financial Protection Bureau to examine mandatory-arbitration agreements, but doesn’t set a specific time frame for the agency to do so.

“We need more scrutiny over these things and make sure they are fair to consumers,” said Susan Weinstock, a project director at Pew.

…

“What the banks have done with these arbitration programs is buy themselves immunity with respect to complaints about their consumer practices,” said Bruce Rogow, a lawyer at Alters Boldt Brown Rash & Culmo in Miami, which is involved in the overdraft cases.

All of this comes on the heals of the CFPB launching its online credit card complaint form when the Bureau stood up July 21, and the mystery that still remains regarding how consumers will file complaints about other financial products.

When it comes to the payday advance, and CFSA Members, we want to make sure customers have a way to communicate with our Member Companies. You can either click here to fill out our complaint form, or send us an e-mail at LoanQuestions@CFSAA.com. Please note that our complaint form only applies to CFSA Member Companies.

Indian Country released a story today regarding Internet payday lending and its connection to Indian Sovereign Nations. As CFSA has said in its release, “our Best Practices require that all our member companies that offer payday advances through the Internet must be licensed in the state in which the customer resides and that they comply with all applicable state laws.”

In the opposing corner is the Community Financial Services Association of America (CFSA), based in Alexandria, Virginia. The payday lender trade group, founded in 1999, said on July 7 the tribal/payday lender affiliations “are solely a practice of some Internet-based lenders who choose not to license themselves in the states in which they operate, but rather rely on the law of the sovereign nation.”

CFSA said its “best practices require that all our member companies that offer payday advances through the Internet must be licensed in the state in which the customer resides and that they comply with all applicable state laws.” This “ensures strong consumer protections wile preserving access to short-term credit.”

A study done earlier this year by the Washington, DC-based Center for Public Integrity alleged that Internet-only lender/tribal arrangements were “rent-a-tribe” arrangements to get around state rules and potential lawsuits, an update from earlier “rent-a-bank” arrangements in states that had fewer restrictions on this kind of lending.

Click here to read CFSA’s media statement.

According to the American Banker, payday lenders have a ‘few friends in high places,’ at least as it relates to the recent KC Fed discussion.

In particular, KC Fed economist Kelly D. Edmiston found evidence that, in states that ban or restrict payday loans, consumers have lower credit scores and make less use of traditional credit.

“I’m arguing that they either lose access to credit, or are using less healthy forms” of short-term borrowing, such as bounced checks, overdraft loans or even illegal loan sharks, says Edmiston.

…

Sharing the debate panel with Frank and with Darrin Anderson, an executive from payday lender QC Holdings, Edmiston defended his research, pointing out that the results were not intended as an argument against bans but as a starting point for discussions on payday loan restrictions, which he says haven’t been examined enough. “The evidence is mixed,” he says with a shrug.