Here’s a story from Mississippi about a new payday lending alternative.  The Payday Pundit thinks this is great.  The more choices consumers have when it comes to short-term financial products, the better!  However, because you’ve come up with an alternative doesn’t mean you should replace existing products.  Let the market work and let consumers choose which product they like better.  There is one thing in this announcement that makes this pundit think that this new loan will not replace payday loans outright:

There are no fees to participate in the BankPlus program, but a credit check is required, and the credit score affects the loan amount for which a customer is approved. Customers also must complete a financial literacy program before they receive the loan and they receive credit counseling once they are approved

One reason people take out payday loans is because there is no credit check required.  Imagine if you’re a busy person and need money today, something tells me you won’t have time to receive credit counseling before you need the money.

I was at the grocery store last night and took a spin down the bottled water aisle.  I counted over ten different brands of water. TEN! That was just for still water, not fizzy fancy mineral water or ultra pure distilled or raspberry flavored “performance” water…just plain old water that you can get for pennies out of the tap.  Why does my grocery store carry ten different brands of plain old water?  Because consumers like choices, they might like the image that goes with drinking a fancy French fizzy water, they might choose bottled water over a soda or their tap water might taste like bog water (as mine does) and prefer drinking water that has been purified elsewhere.  In the end, no one forces consumers to buy bottled water, but if they want it the option is there.

That’s what Ohioans for Financial Freedom are fighting for.  You don’t have to take out a payday loan if you don’t want to.  There are alternatives, someone with an unexpected expense can take a cash advance on their credit card, ask their employer for an advance on their payday, ask their family for help, they could pawn a valuable item, some credit unions offer loans or they could just go ahead and pay overdraft or late fees.  These are all perfectly good options, as is taking out a payday loan and that option should remain available to those that want it.

CNN Money lists the Best (and worst) ways to raise fast cash.  Of course, they list payday lending as the last option…even below liquidating your 401K and taking a cash advance on a credit card.  With a bit of education, the folks at CNN Money would recognize that paying a flat fee of $15-$17 per $100 for a payday loan is much better than many of the options they listed.

An Ohio State University professor details what employees can do to be considered “most valued employees” by their boss. Listed in what not to do:

• Do not ask your employer for loans and pay advances. Your employer is not a banker. Asking for loans and pay advances suggests that you cannot manage your finances. Such a negative evaluation of your personal management abilities may threaten future career advancement.

The Center for Responsible Lending lists “ask your employer for a salary advance” as an alternative for payday loans. While it may be an alternative, it may not be good for your career.

Ohio’s Coalition for Responsible Lending (“OCRL”) has issued a press release filled with deceptive information and fabrications. They should be held accountable and asked to back up their irresponsible claims with facts. It is important that people see through the hype surrounding the issue and consider the facts.

CRL Claims: A “compromise” is threatening the payday lending legislation and “outraging” advocates.

• The Truth: The industry has not put forward language for a compromise bill, but has talked to legislators that are interested in preserving some version of small loan choice for consumers and not putting thousands of people out of work. Our goal has always been to be part of a solution that addresses the concerns of policymakers and provides responsible protections for consumers. This type of scaremongering by OCRL underscores the fact that they do not want to help consumers. They refuse to support legislation that would actually help consumers by addressing issues such as cycle-of-debt. Their goal is not reform, it is an outright ban.

CRL Claims: The industry tapped into an almost never-used provision in Ohio Revised Code that allows credit unions to charge fees of $10 per $100 on top of the 18% APR allowed. Credit unions never took advantage of the provision because it was predatory.

• The Truth: This is misleading. Credit Unions asked for the provision in HB 81, sponsored by Geoff Smith and enacted in April 2006. In fact, the two credit union alternatives frequently referenced by the Bill Faith and OCRL charge more for a first time borrower than payday loan companies do.

For example:

The “Stretch Pay” payday loan alternative, offered by credit unions across Ohio and championed by OCRL and others as a better choice for consumers, comes with an 18% APR plus an annual fee of $35 (for a $100 advance) or $70 (for a $500 advance).

“Grace” Payday Loan offered by Faith Community United Credit Union- Cuyahoga County, OH is 17% APR plus a $15 application fee per loan.

CRL Claims: The industry wants borrowers to pay for industry’s taxes

• The Truth: Like any other product ot service, the costs associated with providing a payday loan dictates the pricing for consumers. Due to their not-for-profit status, credit unions are exempt from federal and state income taxes. And they do not have to pursue a profit. They are, therefore, able to offer payday loan alternatives at break-even or less. Credit Unions do not have the resources or the infrastructure to handle the loan volume after payday lenders leave. In order to continue offering payday loans in Ohio, for-profit payday lenders would need to not only break-even, but pay taxes and make a reasonable profit. The industry welcomes credit unions and any other financial service providers into this market. We believe consumers should have more choices, not fewer, and select the one that best suits their needs.

CRL Claims: First-time emergency borrowers would pay 469% APR…Currently, payday lenders charge $15 per $100, or 391% APR.

• The Truth: The numbers don’t add up. The fee per $100 will go down from $15 to $10.00, the truth is that the only additional fees discussed were for tax liability obligations, but CRL claims the APR will go up from 391% to 469%. This is blatantly false.

First of all, only 30 banks, generally small local ones at that, have signed up for the program.  Second, when customers find out all the strings attached to getting a short-term loan from one of these banks–application fees, minimum balances in a savings accounts, complicated fee structures–they will decide that a payday loan is a better deal.  In any case, the market will decide.

This Kansas City Star story has more.

The Bloggers Network conducted this online interview with the head of the Ohio Association of Financial Service Centers, Jamie Frauenberg.  Jamie, who is also a Sr. VP at CheckSmart, has been on the front lines these past weeks in the “battle of Ohio.”   From the interview:

If the Payday Loan industry disappears, where will people with no credit go?

Customers use payday loans to avoid other fees or less desirable alternatives. They choose between bouncing a check or overdraft protection, incurring late fees on routine bill payments, borrowing from friends, family or church, taking out a cash advance on a credit card, using an online lender or taking out a payday loan.  All of these products have a cost associated with them.

Eliminating payday loans just forces people to chose alternatives they had previously tried to avoid.

Recent studies have shown that without payday loans, customers bounce more checks, complain more about lenders and debt collectors, and file for Chapter 7 bankruptcy at a higher rate. One survey found some customers had utilities disconnected, went without a prescription medication or ended up with a damaged credit rating.

In each case, consumers may have been better served by payday advances, which often offer lower fees and do not negatively impact credit ratings.

Tommy Moore, the Executive Vice President of the Community Financial Services Association of America, has a letter in today’s Christian Science Monitor echoing the favorable comments in this terrific guest column by Tim Miller of the Center for Consumer Freedom from a few days ago:

In response to Tim Miller’s recent Opinion piece on banning payday loans: Critics of the payday advance industry claim to be representing the best interest of the consumer, yet they want to limit the already small number of short-term credit options available. Many of these critics have never taken out a payday advance before, nor ever needed short-term credit, yet they know “what is best” for everyone. Payday advance customers have strong sentiments against the government limiting their access to these advances. They want to be able to make their own financial choices.

Based on the reasons customers choose payday advance, limiting their use would, in most cases, drive them to more expensive and less desirable alternatives that they had previously tried to avoid.

At this time, no one is offering any real alternatives to payday advances. To date, almost all of the attempts to create payday advance alternatives have either been charity-based, required government subsidies, unavailable to the general public, unprofitable, or unsustainable. Hopefully politicians will quit spouting rhetoric and stop ignoring the only people whose opinions should really matter – the customers who use the service and the employees whose jobs are on the line.

Tommy Moore
Alexandria, Va.

 

According to this news release, the Family First Credit Union in Urem, Utah has an “alternative” to payday lending.  As we’ve said before, it’s hard to do an “apples-to-apples” comparison to payday loans because the terms of these so-called “alternatives” are so different.   Here are the terms for this product:

• 30-day repayment term
• Flexible payment plans
• $10 participation fee per $100 loaned
• $100 minimum loan
• $300 maximum loan for first-time borrowers; $700 for return borrowers
• 18 percent annual percentage rate

So it’s $10 plus 18% for every $100.  And it’s a 30-day loan.   I guess we’ll let the consumers decide if that’s a good “alternative.” 

This Cincinnati Enquirer editorial demonstrates the shallowness and bias of some media.   The editoral writers just take their talking points from advocacy groups.   The Payday Pundit takes them to task:

The Enquirer:  The Senate should pass a strong reform, but it should also make sure the market can offer options for well-regulated, low-cost, short-term loans.

The Payday Pundit:  “The market,” in the form of banks, credit unions and other finanical institutions, have been trying to develop alternatives to payday loans for years.  The Enquirer believes the Ohio State Senate can wave a magic wand and come up with a short-term loan product that’s better? 

The Enquirer:  There’s a legitimate need for these loans, but not when the loan terms outstrip borrowers’ ability to repay.

The Payday Pundit:  How does an industry stay in business loaning money to people who can’t repay?

The Enquirer goes on the cite a bogus North Carolina study that purports to prove that consumers weren’t hurt when payday lenders left the state.  At least that’s what the news release on the study said, but when you examine the study itself, it tells horror stories of people not buying medications and missing other important payments.

The Cincinnati Enquirer editorial writers live in the same elitist bubble as the payday lending industry’s critics.  They are condescending, self-righteous, and philosophical (as opposed to knowledgeable). 

There’s probably more wisdom in the National Enquirer than the Cincinnati Enquirer. 

Let the Enquirer know your thoughts at .