Research has found that bans on payday lending leave consumers in greater financial distress. Three studies have looked at what happened to consumers in states where payday lending was eliminated and discovered the true cost to consumers of this misguided approach.

Read more about the research.

Niger Innis of the Congress on Racial Equality (CORE) testified today before the Ohio Senate Committee on Finance and Financial Institutions.   Here’s a news release CORE sent out.  Key passage:

Today, Innis told Senators, “It seems unfortunate to me that the people of Ohio are in danger of losing the choice of a viable financial tool. A tool, which when lost in other states such as Georgia and North Carolina, has hurt consumers.”

So says Larry Wilson in the State Newspaper of South Carolina.   We don’t normally see much wisdom from the editorial page of this paper, but this is a guest columnist, not one of their regular writers.   Wilson, the chairman of the South Carolina Council on Education, says: 

A staff report of the Federal Reserve Bank of New York concluded that consumers in Georgia and North Carolina have more debt and bankruptcies since those states banned payday loans.

The much wiser course is for government and the private sector to help consumers help themselves become economically literate. We need to educate, not overregulate.

The Payday Pundit applauds the State newspaper for giving space to Mr. Wilson. 

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 .

Terry Kibbe of the Consumers Rights League weighs in.    From her piece in today’s Los Angeles Times:

“The Center for Responsible Lending and other so-called consumer advocacy groups rely on shoddy research in stirring gender, racial and class sensitivities to make the case against payday loans, as they did during their successful crusades in Georgia and North Carolina to run payday shops out of business. Though they claimed that the elimination of payday loans saved Georgia residents approximately $154 million per year, that claim was refuted by a Federal Reserve report (pdf) indicating that consumers ended up paying more through overdraft bank charges and late fees. Critics of payday loans are content to ignore that the mass of payday borrowers are middle-income, educated consumers.”

Terri goes on to oppose “big brother” restrictions on payday lending. 

The Payday Pundit just picked this up from last week’s  Credit Union Times site.   Rep. Patrick McHenry (R-North Carolina) wants the House Financial Services Committee to investigate a $15 million contribution the Center for Responsible Lending received from a hedge fund mogul.  CRL’s shenanigans are detailed in this report from the Consumer Rights League.

The report from staff researchers at the Federal Reserve Bank of New York is continuing to pick up steam. 

As states look at consumer credit issues it’s important that they look at the facts and carefully examine the real impacts of legislation.    The Federal Reserve staff study does just that and finds that one of the unintended effects of such legislation, which we see in states like Georgia and North Carolina, are increased credit problems for consumers.

To ignore what is already happening to individuals in states without payday lending and to continue on an assault on an industry which provides a better option for many in a short-term credit crunch is foolish and damaging to consumers.  Legislating payday loans into fee structures which are impossible to operate under extinguishes consumer choice.  We already see that individuals are forced to turn to more costly credit options when payday loans aren’t available.

The Open Markets Blog of the Competitive Enterprise Institute took note of this and posts on the report.  Kudos for highlighting this important piece of research. 

Good news for Advance America (and borrowers) in North Carolina.  According to the Fayetteville Observer:

The N.C. Court of Appeals on Tuesday said payday lender Advance America should have another chance to fight for the right to issue payday loans in North Carolina.

The decision overturns a ruling by a judge in Wake County Superior Court that said Advance America missed a deadline to continue its legal fight to stay in business here.

Two cheers for Advance America for fighting the good fight in North Carolina. If Advance America is successful, payday loans could again be offered in the Tar Heel State.

Kudos to North Carolina Public Radio journalist Janet Babin for this accurate, in-depth report on the payday lending industry in this piece from National Public Radio’s Marketplace program. The piece discusses new research that says payday loans can actually benefit consumers and that consumers in states without payday lending are driven to bounce checks or turn to other less desirable options.

The takeaway on this is simple – consumers benefit when there is competition in the marketplace.