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.

These two pieces discuss the perception that pawnbrokers and payday lenders do better during tough economic times.   But some say the picture is not so clear.   More business doesn’t necessarily lead to more profits as there are fewer buyers for pawn items and possibly more defaults on payday loans.   We think a lot more numbers crunching  and less stories using anectodal information is needed.

Here’s an article from Louisiana and another from Indiana.