The Center for Consumer Freedom responds to a recent editorial in Kansas’ Witchita Eagle.

“…The Eagle editorial ignored these critical facts while narrowly focusing an ad hominem critique on the payday industry alone. These lenders earn a mere fraction of what traditional banks make on service fees. In 2003, bounced-check and insufficient-fund fees generated $22 billion in bank revenues, which was equal to 18 percent of banks’ net operating income. The banking industry brought in an additional $57 billion in late fees.

“Vulnerable Kansans” are best served when they have the ability to bridge temporary stress in their budget. Instead of restricting payday lenders, government should focus on making sure consumers have the ability to choose the best borrowing option for their needs.

Payday lenders, employees and customers are testifying before the Colorado legislature in an effort to keep their livelihood and consumer finance options intact in the face of special interest groups that want to destroy the payday advance industry.  Some of the key points brought out in this Rocky Mountain News item include: 

          “Employees expressed concern about their jobs, while customers testified that the loans got them through tough times.” 

As the nation totters on the edge of a full-blown recession, should state legislatures really be adding to the problems of unemployment and fewer personal finance options?  You may recall a recent Federal Reserve Bank study that outlined the problems working Americans faced following previous payday advance bans, so why in the world would Colorado want to put its people through the same misery, which may well be even worse if the economy does slip into recession?

Then there’s this little chestnut the special interests like to toss around from time to time when people talk about destroying jobs and eliminating consumer choice by banning the payday advance industry:         

          ‘”Innovative businesses” and credit unions “would step into the void,” he (State Sen. Peter Groff) said.’

Right.  Payday Pundit has already exposed how one credit union plan in Pennsylvania forces customers to borrow more than they need to just so the lender can sock consumers with high loan interest fees while paying a veritable pittance in returns.  Meanwhile other bank fees are soaring.   

And by the way, why would a legislature want to create a marketplace “void,” in the first place?  This just doesn’t pass the smell test.

Between adding to unemployment woes, reducing consumer choice and forcing borrowers into higher priced alternatives, it’s no wonder the Rocky Mountain News has editorialized in favor of letting the payday advance industry remain in marketplace.

The Motley Fool picks up on the GAO report finding that, in 2006, consumers paid $36 billion in bank fees.  The Fool is highly critical of the government but also critical of consumers who don’t understand how much they’re paying in fees.  

How does this relate to payday lending?  Storefront payday lenders collected $6.5 billion in fees in 2006.  And payday lending customers understand exactly what they are paying per $100 for their two-week loan.  Members of CFSA are required to post their fees on poster-size displays in large type.

Yet, nobody is calling for a ban on banks.  

GAO: BANK FEES: Federal Banking Regulators Could Better Ensure That Consumers Have Required Disclosure Documents Prior to Opening Checking or Savings Accounts

A new GAO report coming out on Monday details rising bank fees and lack of transparency in fee disclosure.  The report says overdraft protection fees increased 11% between 2000-2007.    Excepts from Sunday’s Washington Post story on the report:

“Banks are failing to provide consumers with information about fees on savings and checking accounts even though federal rules require such disclosures.”

“The GAO report says the percentage of income at banks and thrifts derived from    “noninterest sources,” which include fees, rose to 27 percent in 2006 from 24 percent in 2000. Increased consumer use of electronic payments, as well as increased marketing of automatic overdraft protection programs, are likely contributing to the trend, the report says.”   

In comparison, members of CFSA, the national trade association of payday lenders, are required to display their fees on poster-size displays in all story locations.