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Pay Day Loans Myths Punctured in New Report

From Competitive Enterprise Institute, February 6th; by Christine Hall

So-called “payday loans” and other forms of non-bank , short-term credit are roundly vilified by many politicians and activists, including the Obama White House.  But a new report from the Competitive Enterprise Institute finds many “dubious arguments” are made about the true costs of such credit.

In the CEI OnPoint, “The 400 Percent Loan, the $36,000 Hotel Room, and the Unicorn,” CEI’s John Berlau explains why political attacks on such loans are both wrong and harmful in limiting the options of  the very people they’re aimed at protecting. Berlau argues that “annual percentage rate” is the wrong lens to look through to pass judgment on short-term credit.

State Senator Calls for Changes in Missouri Pay Day Loan Laws

From Kansas City Star,February 7th; by Wes Duplantier

Current Missouri law says that that pay day loans must be paid off in 31 days. Sen. John Lamping, R-St. Louis County, told a Senate committee Monday that people should get at least 90 days to pay those loans. His legislation bill would make it illegal for payday lenders to “rollover,” or extend loans beyond 90 days. It also would require lenders to enter customers’ names in a state database to ensure a single customer does not take out more than one loan at a time.

Some criticized Lamping’s proposal Monday, arguing it could force consumers to stay in debt longer, even if they were able to pay their loan quicker. Gerri Guzman, the executive director of the Washington-based Consumer Rights Coalition, said the tracking database would invade customers’ privacy and could encourage them to use illicit sources for short-term cash. “Consumers should not be punished for having tough times,” she said. “They should not be trapped or made to feel like criminals.”

Alabama Consumers Speak Out Surrounding First CFPB Hearing on Payday Lending

Consumer Rights Coalition (CRC) shares member stories about their use of short-term credit during natural disasters, health emergencies and economic difficulties

Birmingham, AL— Consumer Rights Coalition, a national consumer organization dedicated to improving and expanding access to short-term credit options, released the stories of several Alabama payday loan consumers in an effort to ensure the stories of real consumers are considered during the Consumer Financial Protection Bureau’s (CFPB) first field hearing on payday loans in Birmingham today.

CRC is an organization of more than 210,000 consumers nationwide, and nearly 2,500 in Alabama, who use short-term, non-bank financial products to manage their household finances.

A recent study found that 64 percent of Americans do not have $1,000 on hand in case of an emergency.  As a result, today almost 20 million Americans are turning to non-bank financial products, like check cashing, installment, payday and pawn loans. Consumers choose short-term loans because they are usually the most cost effective and least credit-damaging option available.

As a consumer organization focused on expanding and improving credit options, we support the CFPB’s mission to improve transparency of all consumer lending products; create a level playing field between banks and non-bank lenders; and ensure that all financial products and services are fair.

The CFPB has asked Americans to share their consumer loan experiences with them.  We are pleased to offer the stories of a few CRC members in Alabama that demonstrate the importance of access to short-term credit:

I am a survivor of the April 27, 2011 tornado that devastated Tuscaloosa.  We lost everything and I was hospitalized for a month from injuries inflicted in the tornado. We had home insurance, but were turned down by FEMA, which hurt us financially. We have been able to slowly get back on our feet, due to help from payday loans.  We truly thank them for being there for us.

Sharon K., Tuscaloosa, AL

Banks have made it so hard to borrow money, especially without any collateral.  Being a single woman who is taking care of aging parents, short-term payday loans are a life saver.  These loans are the only chance many of us have to keep our heads above water, taking them away would be detrimental to so many.

Sandra F., Anniston, AL

Without payday loans I would be more behind on my bills than I am. I would also be in foreclosure. Due to family illness, an ex-husband behind on child support, a daughter in college… I have no option but to use these types of loans in order for my family to survive.  Paying a fee each month is better than $38 for bounced checks &/or no payment.  If you take these options away, I will be forced to file bankruptcy &/or be homeless.  And, yes-I work 40(+) hours a week–I get NO government assistance.  I used to be middle class–but, now find myself drowning and in worse shape than any of the “poor” people I work with every day that get more in food stamps than I spend on my own family using my own money. I am frustrated and defeated.

A. Bridges, Athens, AL

For more stories from Alabama and other CRC members from across the country, please go to http://consumerrightscoalition.org/share-your-story/

Payday Lenders Plead Case to U.S. Consumer Agency

From Reuters, January 19; by Verna Gates

The CFPB, which recently gained the power to oversee the industry, held the event on Thursday in Alabama – the state with the highest number of payday lenders per person… Supporters packed the room to tell tales of how short-term lending products have helped them get by. LaDonna Banks described an emergency kidney transplant for her brother, where a payday loan saved her $200 in banking fees. Sydney Bonner, who had her job hours scaled back, got a payday loan for a birthday party for her six-year-old. Angie Thomas found a payday loan cheaper than a credit card advance in a family emergency.

Still resumes yearly payday loan battle

From Columbia Daily Tribune (MO), January 13

State Rep. Mary Still has resumed her effort to rein in payday lenders. Still, D-Columbia, yesterday introduced her latest version of a measure to limit the interest rates charged by the short-term loan companies to 36 percent, far below the level now allowed by state law.

Consumer Watchdog Begins Supervising ‘Nonbank’ Companies

From FOX Business, January 12; by CreditCards.com

On his first full day as director of the federal consumer financial watchdog agency, Richard Cordray announced the start of closer scrutiny of nonbank financial services providers such as payday lenders, check cashing stores, credit bureaus and debt collectors.

“Holding banks and nonbanks accountable to consumer financial laws will help create a fairer, more transparent market for consumers,” Cordray said Thursday.

Financial Reform CFPB’s First Move with a Director in Place: Confront ‘Nonbanks’

From TIME, January 5; by Brad Tuttle

One day after President Obama appointed Richard Cordray as director of the Consumer Financial Protection Bureau over the objections of Senate Republicans, the bureau announced the launch of a new “nonbank supervision program.”

What’s a “nonbank”? That’s the CFPB’s term for a lender that doesn’t have a bank, thrift, or credit union charter. Mortgage lenders, payday loan operations, debt collectors, and consumer reporting agencies are all considered “nonbanks.”

For Banks, Little Progress on Loans to the Unbanked

From American Banker, September 22; by Kevin Wack

Please note, this publication requires a subscription to access the full article.

Despite years of encouragement by their regulators to provide small-dollar loans to people without access to traditional forms of credit, banks largely remain reluctant to enter the field.  At a congressional hearing on September 22, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency could point to little progress on the issue since 2009.

…”At some level, restrictions that are too tight on providers could make it unviable to offer small-dollar loans to the underserved, causing regulated companies to exit the market,” testified Melissa Koide, vice president of policy at the Center for Financial Services Innovation. “Conversely, placing too little emphasis on consumer protections leaves open the door for unaffordable and abusive products.”

Credit Union Times: Senate Panel Approves Cordray Nomination to Head CFPB

October 6, 2011–On a party line vote, the Senate Banking Committee today voted to confirm former Ohio Attorney General Richard Cordray to be the first director of the Consumer Financial Protection Bureau.

Guzman Issues Statement on Cordray Nomination to CFPB

On October 6,  2011, The U.S Senate Banking Committee voted to advance Richard Cordray’s nomination to serve as the first director of the Consumer Financial Protection Bureau (CFPB). In response, Gerri Guzman, CRC Executive Director, issued the following statement:

CRC is a consumer group advocating for greater access to credit.  CRC supports the CFPB’s mission to deliver strong consumer protections while preserving and expanding credit options.  We will work with Mr. Cordray, if confirmed, and the CFPB on issues that are important to our members, such as improving financial education, offering protection from bad actors, ensuring clarity for all bank and non-bank products, and most importantly, protecting and expanding their options in accessing all forms of credit.

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The consumer voice

by Gerri Guzman

Databases and Your Privacy

Last week I had the privilege of representing your interests at a state senate hearing in Missouri, where legislation has been introduced that calls for a state-wide database of payday loan customers. This means that when you take out a short-term loan in Missouri, your name is entered into a state-wide database to ensure you cannot take out more than one loan at a time.