We couldn’t have said it any better. Talk about a reporter that gets it. Yesterday’s article in the Richmond Times-Dispatch, which took on the topic of storefront payday lending, is a perfect example of a sober economic analysis without the emotional criticism.

While A. Barton Hinkle poses the question of whether storefront lending is a convenient service or evil incarnate, the crux of the article really points to what happens when lawmakers “crack down on payday lending.” Virginia lawmakers recently changed loan terms and placed limits on the number of loans consumers could have at one time. As one might suspect, many payday lenders left the state, and the number of transactions dropped by more than 80 percent—but the demand for short-term credit certainly did not vanish. In fact, Hinkle points out those borrowers in need of payday loans will migrate to other short-term credit options, even if they are more costly.

“This is probably a fool’s errand; shutting down lenders won’t make demand disappear,” Hinkle said. “Borrowers in need of quick cash may just cross jurisdictions — or turn to even more risky sources, such as the Internet.”

And finally, a reporter who really drills down to the cost comparison of products that compete in the short-term credit market.

…”critics insist the interest rates charged by storefront lenders are so high they’re immoral. But it’s the critics, not the lenders, who are being dishonest. Here’s why:

Suppose Milton borrows $250 from a storefront lender and pays it back two weeks later. The lender charges a standard $15 fee to pay his employees, his utility bill, and so on. That is 6 percent of the loan amount. Yet critics want to express that as an annual rate — which, in this case, would be 156 percent. This sounds outrageous. What it really tells us is not that the lender’s greed is huge — but that the loan amount is small. A $15 charge on a two-week, $10,000 loan has an APR of only 3.9 percent, even though the transaction charge is exactly the same.

Banks and credit unions don’t usually offer the sort of financial services storefront lenders offer. When they do, they end up charging similar sums. StretchPay, an Ohio-based credit-union alliance, charges an annual fee of $35 for loans up to $250. That’s an APR of 364 percent on a two-week loan.”

So, what’s in a name? That which we call a rose? Hinkle addresses the correlation between payday lending and microcredit. Two financial products that look the same, act the same, but are known by two different names. And just as Shakespeare’s Juliet said, “a rose by any other name would smell as sweet,” microlenders are praised for their humanitarian aide as third-world financiers, lending very small amounts so that citizens who may not have had access to funds could start a business.

“Microlenders have been criticized because, given the small loan amounts, the effective interest rates they charge also turn out to be pretty high — anywhere from 70 to 125 percent. But they don’t ask for collateral, either. That makes them look a lot like payday lenders.

There’s one big difference, though: While payday and similar lenders are reviled for preying on the poor, Grameen Bank and its founder, Muhammad Yunus, were awarded the 1996 Nobel Peace Prize.”

PBS Oklahoma affiliate’s ONR examined the price of payday loans in the state with the following broadcast segment that aired earlier this week. In the story, Lis Exon talks to Oklahomans about their use of the product, how often it’s used, and why O

K consumers are choosing to use it over its “traditional” alternative.

Though the cost is more expensive than a credit card, 13 percent of Oklahomans have used a loan store in the last five years. Not only has the product become more mainstream, but Oklahomans don’t always have access to credit cards (due to credit ratings or lack of access), and prefer a payday loan for its convenience, reliability, and upfront disclosures.

When asked why she would choose a payday loan over a credit card, Billie Adams, an OK payday loan customer said: “This I can control if I need it for a week, if I need it for two weeks. I can take control and pay it back.”

And how do complaints stack up against storefront payday lenders in Oklahoma? Well, they’re virtually nonexistent. According to Rick Brinkley of the Tulsa Better Business Bureau, in the last three years, only complaints about some online payday loan companies have skyrocketed. “We’ve seen nearly 3,000 complaints on tribal payday loan companies,” he said. “We have seen one complaint, I believe, on a traditional payday loan company.”

“I would personally prefer to have storefront payday loan companies in the state, with restrictive laws that are pretty limiting to what a consumer can get. Cause if we do away with payday loan companies in this state, we are literally pushing the poor to these websites where they will be—in my opinion—taken advantage of,” Brinkley said.

Rich Text AreaToolbarBold (Ctrl + B)Italic (Ctrl + I)Strikethrough (Alt + Shift + D)Unordered list (Alt + Shift + U)Ordered list (Alt + Shift + O)Blockquote (Alt + Shift + Q)Align Left (Alt + Shift + L)Align Center (Alt + Shift + C)Align Right (Alt + Shift + R)Insert/edit link (Alt + Shift + A)Unlink (Alt + Shift + S)Insert More Tag (Alt + Shift + T)Toggle spellchecker (Alt + Shift + N)▼
Toggle fullscreen mode (Alt + Shift + G)Show/Hide Kitchen Sink (Alt + Shift + Z)
FormatFormat▼
UnderlineAlign Full (Alt + Shift + J)Select text color▼
Paste as Plain TextPaste from WordRemove formattingInsert custom characterOutdentIndentUndo (Ctrl + Z)Redo (Ctrl + Y)Help (Alt + Shift + H)

PBS Oklahoma affiliate’s ONR examined the price of payday loans in the state with the following broadcast segment that aired earlier this week. In the story, Lis Exon talks to Oklahomans about their use of the product, how often it’s used, and why OK consumers are choosing to use it over its “traditional” alternative.

Though the cost is more expensive than a credit card, 13 percent of Oklahomans have used a loan store in the last five years. Not only has the product become more mainstream, but Oklahomans don’t always have access to credit cards (due to credit ratings or lack of access), and prefer a payday loan for its convenience, reliability, and upfront disclosures.
When asked why she would choose a payday loan over a credit card, Billie Adams, an OK payday loan customer said: “This I can control if I need it for a week, if I need it for two weeks. I can take control and pay it back.”
And how do complaints stack up against storefront payday lenders in Oklahoma? Well, they’re virtually nonexistent. According to Rick Brinkley of the Tulsa Better Business Bureau, in the last three years, only complaints about some online payday loan companies have skyrocketed. “We’ve seen nearly 3,000 complaints on tribal payday loan companies,” he said. “We have seen one complaint, I believe, on a traditional payday loan company.”
“I would personally prefer to have storefront payday loan companies in the state, with restrictive laws that are pretty limiting to what a consumer can get. Cause if we do away with payday loan companies in this state, we are literally pushing the poor to these websites where they will be—in my opinion—taken advantage of,” Brinkley said.
Path:

And just to give our audience more color on the importance of competition in the marketplace, and how it drives innovation and reduces costs for the millions of consumers, here’s another quote from Martin that CFSA supports:

“A strongly regulated short-term credit market is desperately needed by millions of Americans trying to manage tight budgets in a tough economy. The Birmingham News should take time to better understand this important issue before taking a position, and should be encouraging competition, new services and entrepreneurship in this market, not the elimination of a single service.”

Back in July, CFSA’s D. Lynn DeVault sent a letter to the editor to American Banker discussing the same issue. Here’s a look at what our Board Chair had to say:

“The storefront payday lenders represented by the Community Financial Services Association welcome banks and credit unions into the payday lending market. Increased competition will drive innovation and reduce costs for the millions of consumers who need help managing unexpected and periodic financial difficulties. Our members offer a regulated mainstream financial service that competes favorably with deposit advance and overdraft protection products. What is important is that the CFPB ensures all short-term credit options are simple, fully disclosed, transparent and cost competitive.”

Barbara Martin, Divisional Director of Operations for Advance America, had a great response to an article that came out last week in the Birmingham News online.

“Your uninformed conclusion to eliminate this service from the marketplace would only force consumers who rely on payday advances to use other, less-regulated, more-costly, short-term credit products such as illegal offshore Internet loans and overdraft protection, or pay late fees on credit cards and utility bills.

In Georgia and North Carolina, where payday lending was effectively banned, a Federal Reserve Bank of New York staff report found bounced checks, personal bankruptcies and complaints about other types of lenders jumped significantly when consumers no longer had the regulated payday-loan option.”

A direct solicitation from The Consumer Financial Protection Bureau says they want to hear from you for the official record! Meaning, payday advance customers! Here’s what Zixta Martinez said in her March 23 blogpost:

Public input is tremendously important to our work at the CFPB. At our January field hearing in Birmingham, we had the opportunity to gather information directly from Alabamans about their experiences with payday loans.

We’d also like to hear from you. The CFPB is inviting public comments for the record. Please take this opportunity to share your thoughts and insights.

Your official comments will help inform how the CFPB works to protect consumers and create a fairer short-term credit marketplace. And to make it easier, you can do it online! Click here to tell the CFPB why a payday advance is an important financial option for you.

You can also watch CFPB Director Cordray’s opening remarks from Birmingham below, or read the transcript of the entire event, including what the Bureau heard from the public.

 

Under House Bill 289, Delaware borrowers would be limited to five payday loans of $1,000 or less in any 12-month period, including loan rollovers or refinancing. HB 289 would also create a database to track the number of payday loans a person has obtained.

Excerpt from State of Delaware’s website:

This bill limits to five the number of short-term consumer loans (sometimes called payday loans) that any one borrower may obtain in a twelve month period. It changes the definition of short-term consumer loan to include loans up to $1000 rather than $500. The bill also provides for establishment of a database to track the number of short-term consumer loans an individual has obtained in a twelve month period. Finally, the Banking Commissioner is directed to provide a report on the prevalence and nature of these payday loans to the General Assembly.

HB 289 has been assigned to the House Economic Development, Banking, Insurance and Commerce Committee.

Article in the Salt Lake Tribune is asking consumers the following question: Want out of a payday loan? According to HB 459, you could get out of your loan if the payday lender you’re doing business with is not properly registered with the state. Here’s an excerpt from the article:

If a payday lender is not properly registered with the state, a bill approved by the House on Friday would void its loans — and ban collecting any principal or interest.

HB459, approved by the House on a 60-11 vote and sent to the Senate, also requires payday lenders to report some additional information to the state every year — but stops requiring some data that raised questions about how many loans they are making.

Rep. Jim Dunnigan, R-Taylorsville, sponsor of HB459, said most payday lenders with stores in Utah are properly registered, but some shadier ones operating online are not. He said the provision to void loans of unregistered lenders puts teeth in requirements to register.

Article from the Denver Post discussing the nature of certain online lenders and their tribal partnerships. Quote fromthe Colorado attorney general’s office last year these certain “lenders treat the law.”

“They flout it,” Deputy Attorney General Jan Zavislan told The Post. “They think they’re untouchable.”

This is an excerpt from an email that came out earlier from the CFPB’s Zixta Martinez, Assistant Director for Community Affairs, The Consumer Financial Protection Bureau:

Tonight, we’re hosting a town hall in New York to hear stories from community members about their experiences with checking accounts. You can watch it live on our website starting at 5:30p.m. Eastern / 2:30p.m. Pacific. We’re interested in stories from elsewhere, too. As you share your status, feel free to share additional thoughts about your checking account experiences. We’ll share what we hear with the CFPB’s Director, Richard Cordray.

Need not worry, you can watch the recap of CFPB Director Richard Cordray’s remarks by clicking here.

If you missed the first event, CFPB Director Rich Cordray talked about CFPB’s inquiry into overdraft practices. Here are some of the things the Bureau is working on when it comes to overdraft protection. EXCERPT BELOW IS TAKEN FROM THE CFPB’S WEBSITE:

• We’re researching how overdrafts affect you. We launched an inquiry through a data request that is being sent to a number of banks and a Notice and Request for Information to gain insight into overdraft practices.
• We want you to understand what actions you can take now to protect yourself from overdraft fees. Do you know your overdraft status? Read our Consumer Advisory that explains how you can learn whether or not you have opted in to debit overdraft fees on ATM and point-of-sale transactions. Go to our Twitter and Facebook accounts to tell us your debit overdraft status.
• We’re working to make it easier for you to understand the costs and risks of overdraft programs. Our model overdraft “penalty fee box” is a thought-starter for a disclosure that would appear on your checking account statement and online banking landing page. It would highlight the amount overdrawn and total overdraft fees charged, so you so can clearly see how much overdrafts are costing you. Tell us what you think.