With all of the talk of fee and market transparency in the credit markets…Payday Pundit wants to remind everyone of the steps the payday lending industry has proactively taken to address the concern over hidden fees and fine print.

Last night on PBS, Frontline re-ran a program called: Secret History of the Credit Card. The show highlighted some facts about credit cards that make the criticisms about payday lending look like child’s play. 

What Payday Pundit found particularly interesting is that by paying only the minimum balance every month, it could take you 35 years to pay it off in full!

Also of note was the fine print found on all of the credit card agreements. The fine print is in stark contrast to the fees displayed on posters in large type in all CFSA member company payday lending stores. 

For consumers, Frontline lists ”8 Important Things a Credit Card User Should Know.”

It’s ironic that so-called consumer activists would advocate that credit card cash advances are a better option than payday loans.

Interesting post from Steele Street Blog, The Assault on Market Transparency:

“When a free market works it is a beautiful think. Adam Smith’s invisible hand graces many a bargain from flat screen TV’s to fast food. Supply and demand work as opposing forces in a tug of war as the market sets the price of goods and services. This process works when purchasers are able compare the quality of goods and services along with their price, among multiple sellers.”

We could not agree more.  The best way to protect consumers is to give them the
information they need to make an informed choice. Consumers demand and deserve full disclosure of relevant information before they make a purchase.

To that end, CFSA member companies are required to display their fees in large type on posters in all of their stores.  Before entering into the transaction, customers can compare the fee with their alternatives and decide if the product is right for them.

Global Compliance, an independent auditing company, found that 99 percent of CFSA-member companies were incompliance with the new Best Practices announced last February.    In fact, as this news release indiciates,  only five of the surveyed stores were not in compliance and among this stores, the infractions were minor. 

D. Lynn DeVault of Check into Cash, one of the country’s premier payday lenders, was elected President of the Community Financial Services Association of America  (CFSA) at the group’s annual meeting which concluded this weekend.   Ms. DeVault takes over from Darrin Andersen of QC Holdings who held the post for two years.  Mr. Andersen led the CFSA through the launch  of new Best Practices as well as a major public education campaign. 

Interviews for Ms.  DeVault can be arranged by calling Steven Schlein or Lyndsey Medsker at 202-296-0263.  

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.  

David K. Musto, Philip Bond and Bilge Yilmaz, finance professors at Wharton, have authored a new paper, “Predatory Lending in a Rational World,” asking the questions, “What is predatory lending? And what are the conditions that make it flourish?”

They found three market conditions associated with predatory lending:

1. There is little competition among lenders

2. Property owners are sitting on lots of equity 

3. Borrowers are poorly informed about risks.

 Payday lending does not meet even one of the three elements.  With payday lending, there is competition (unless prevented by state regulations), the collateral on a payday loan is a personal check and all fees are displayed in large type on poster-size displays in all CFSA-member stores.  Payday loan customers are well-informed of the fees associated with the service. 

The authors go on to say ”…But loans that are bad for some borrowers can be appropriate for others. The payday loan might be a sensible choice for a worker in a short-term cash crunch who will pay the debt off quickly and prefers a high interest rate for a short time over the paperwork and delay of a more conventional loan from a bank or credit union. “ 

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.