Payday Loans Blog

Thomas Sowell, a senior fellow at the Hoover Institution and famous economist, stood up for payday loans today. In eloquent fashion, he dispelled the common myths that have been perpetuated by the media, critics, politicians and "miscellaneous other busybodies" as he calls them.

He tells how politicians typically use words in their rhetoric to magically transform reality into something we believe is reality. The new movement, however, is to use numbers and statistics, as they appear more objective and concrete than words.

It's about time someone else sees the truth and speaks up about it. How many posts on this one single blog have you read to dispell the notion that payday loans are abusive? How many times have I said APR is a terrible measuring tool for short-term loans.

Does Blockbuster say movie rentals are $1,500 a year? Do hotels say they charge $36,000 a year? No, they charge by the night, because that is the typical denomination of time used in their services. Yet two week loans are measured by how much they cost in a year?

The most interesting part of this whole article was the statistics you don't see. Politicians and consumer advocates love to shove the APR of payday loans in your face. Do they know what payday loans are for? To pay rent, the bills, for medication, and other expenses for people who may live paycheck to paycheck.

Of course, every critic of payday loans lives far more comfortably than the common consumer of payday loans, so its not like their word can even be trusted on the matter. But why don't they ever tell you how many renters avoided late fees, how many people's power was not turned off, or how much needed medication was purchased with the aid of a payday loan?

Nope, you never hear those. And you likely never will. The media is strongly behind the anti-payday loan movement. Don't expect them to report the facts anytime soon. Not that our media normally reports the facts anyway...

Don't be misled by payday loan statistics. Numbers, like words, can be shaped to say whatever you want them to.

One of the major criticisms of payday loans are that their rates are too high.  Well, now Congress is looking at banks and their overdraft fees with the same eye.  

Banks call the the "service" overdraft protection.  So, lets say, for example, that you go to the gas station and get a candy bar.  BUT, you only have a dollar left in your checking account and the candy bar costs two dollars.  Never fear!  The bank will protect your overdraft by charging you a large fee-basically, an automatic loan.

There are now a number of lawmakers and consumer groups that are urging Congressional leaders to include overdraft reform in a package concerning the regulation of the finance industry.  One of the main arguments against this kind of overdraft "service" is that American taxpayers have bailed out Wall Street banks already, and are now having to endure dealing with abusive fees from those they rescued.

Last November a report was released by the Federal Deposit Insurance Corporation that found that overdraft fees ranged from $10 to $38 on average.  In 2007, the Centers for Responsible Lending, who generally speak out quite frequently about payday loans-by the way, reported that overdraft fees bring in about $17.5 billion each year.

Another major issue is that most banks automatically enroll their customers in the overdraft protection program without their knowledge or consent.  There also is no system in place that will warn customers that a potential purchase will send them into overdraft territory.

These are large concerns and are, luckily, finally being recognized and addressed.  Instead of going after short-term payday loans as the only financial entity that should be regulated, there is finally attention going to those who are hurting consumers unknowingly and aggressively.  

I was just reading a New York Times piece from Ohio about how pissed off everyone is over there about payday loans. The spokes person for the CRL even went so far as to say that "it takes real will of the regulators to ensure that the will of the legislatures are met." Good to know government is still of the people, by the people and for the legislatures...er...I mean people.

Sadly there were no anecdotal sob stories this time around. That's too bad. I do enjoy reading those inventions of fantasy about as much as I love reading fake testimonials online. My favorite part of the whole article was that after blasting payday loans the whole time, they included the last two paragraphs about CFSA.

CFSA explained how no one is charging anywhere in teh vicinity of 680% APR as the article falsely claims. The state of Ohio passed a law capping loans at 28% APR, effectively killing payday loans. Of course, lenders found a different way to operate, and now the legislature....er...I mean people are pissed.

When will they learn? If legislatures attempt to ban payday loans and lenders change their practices to stay in business, what does it tell you if people STILL COME IN FOR LOANS? It is with that in mind that Check City is please to present our approach to regulating payday loans.

First, Congress will enact a law that enables the people of this country to do business with whomever they choose. People will be free to be patrons of whichever bank, grocery store, restaurant or any other business they please.

What? That's already a law? Oh, I didn't realize there was something called the Constitution that guranteed freedom and liberty to citizens of this country. Oh well, that's fine, it should save us a step. Scrap step one, already been done a few hundred years ago.

Ok then, step two- all payday lenders will be required to fully disclose the terms and conditions of their shady practices. That should show all of us who is boss. Surely once people know what criminals we are, they will tuck their tails and run out the doors.

Wait, what? That's a law too?! People have to be made fully aware of what they are getting with a payday loan and agree to those terms and conditions? Oh, well, great, the Truth in Lending Act has us covered there, too. Scrap step two.

All right, last step- with people allowed to 1) choose whether or not to get a payday loan and 2) choose from whom to get the loan, we can end predatory lending. If any particular payday lender is ripping people off, surely no one will go back and they will go out of business.

And if payday loans in general seem like a ripoff to consumers, they will surely stop getting these terrible products. Brilliant! It's a perfect plan! Allow the industry to be regulated by the consumers! Just like groceries online, poorly made automobiles and anything advertised by Billy Mays, payday loans will go out of business as consumers refuse to buy them.

Wait, wait...hold on one second. This sounds exactly like the system currently in place. And payday loans as an industry have continued to see growth? How is that possible? Shouldn't consumers have wisened up and stopped getting loans from these loan sharks? Or could it be [gasp] that payday loans aren't the brainchild of Satan?!

Could it be that the only people who complain about payday lenders are those who didn't pay them back or those who compete with them? Wait, yup, that is it! Only lobbyists, consumer "advocacy" groups (lobbyists in disguise) and competitors to payday loans are pushing for their ban. And boy have they gotten the public on their side. They have convinced just about everyone who has never gotten a payday loan just how bad they are!

Well, if the day comes that our regulation plan doesn't work and Congress outright bans payday loans, then it will be a sad day. Especially when access to short-term credit becomes either non-existent or more expensive than payday loans. If that day comes, pick up your local newspaper, because I will be sending out thousands of editorials saying I told you so.

We have all seen them. Blogs, newspapers, editorials, organizations, articles and everything else attacking payday loans. They all spew the same verbal diarrhea and blatant lies. Let me explain.

Example 1: From the Las Vegas Review Journal- "Johnson used to pay $79 in fees to a payday lender for a $200, two-week loan."

This is patently false. Check City will charge about $30 for a two week loan for $200. No one charging rates more than double that could possibly still be in business. And if they are, who can possibly be stupid enough to buy a product from someone who charges more than double what everyone else does for the same thing?

Example 2: Same place- "Community One offers 30-day loans for $300, $500 and $700 with a fee of $15 per $100 loaned and an 18 percent annual interest rate, or about 1.5 percent for the 30-day loan period."

Well good for Community One! They are offering cheaper payday loans and getting a pat on the back! Now that's only 200% APR they are charging! How benevolent of them! I'm sure the CRL and others are giving them a big pat on the back for doing EXACTLY the same thing payday lenders are doing for a little less in fees.

Example 3: From the LA Times- "Scarcella rolled over the loans a couple of times, paying a $95 fee per loan that was taken out of her checking account."

Where on earth are these people getting these loans? Scarcella, the fictitious anecdotal sob story, had borrowed five loans of $300 each (which is illegal in CA by the way.) So let's see, $95 per loan for a $300 loan, no time frame given so we'll assume two weeks....that's more than double the $45 fee Check City would have charged!

Does every stupid person in the country find a way to borrow money from the worst possible lenders? According to reports online, yes! I would invite these disenfranchised fake people to come borrow money from Check City. See if the rates are out of control. See if our collection practices are out of control. Not going to happen.

This propaganda is dispecable. Over 90% of repeat borrowers pay their loans back in full and on time without any problem. How can you justify the 1 in 10 who has a problem as being representative of the rest! Report the rule, not the exception!

This kind of liberal, agenda riddled reporting from our media is yet another example of why they cannot be trusted to report facts. Every news outlet has an agenda. They will try and force it on you and make you agree with them. And with payday loans in their sights, it won't be long until everyone hates payday lenders.

The New York Times, being the cesspool of liberalism that it is, has no called for a nation wide ban on all payday loans. Always such a bastion of impressive journalism, it's good to see publication who should be doing nothing but report facts shouting out their political agendas.

"Payday loans — advances that are to be repaid on payday — are so burdensome and so pernicious that in 2006 Congress effectively banned them for military families. Given all the problems workers face right now, Congress should extend this protection to everybody." -The New York Times

It was the great Benjamin Franklin who said that those who would sacrifice freedom for security deserve neither. Well, the NYT and every other flaming liberal in the country is calling for a sacrifice of freedom for the sake of security and protection.

Now I would suggest that history shows us that our government doesn't exactly have the Midas Touch by any means. Most often, anything the government meddles with ends up worse off than before. Here's a novel thought, if you want to be protected from payday loans, then don't use them!

If payday loans are so bad and so predatory, why is the business growing? Why are there repeat borrowers? Shouldn't they be running for cover from the out of control rates? Shouldn't people learn from their first mistake and never borrow again?

Payday loans are obviously not a bad thing if a vast majority of borrowers come back for more. Even more evidence to this is that the only people who complain about payday loans are the people who never pay them back. What does that suggest?

I've got an idea. Stop paying your mortgage, car payments and student loan debts. Just stop completely. Tell me what happens. Tell me if the bank, auto company or student loan company makes your life comfortable when you don't pay them back.

And so people complain that when they don't pay their payday loan back that life is tough? Really? I would never guess that someone who lends money would have a collections department to collect that money!

Now if a payday lender participates in abusive collection methods, we do not support that. We support abiding by the law when it comes to collection practices. Those lenders who do not should be subject to the law they are breaking.

The truth is this- banning payday loans will only hurt the people who use them, not save the people who abuse them. There's better ways to protect people from potentially harming themselves...education. If people knew how payday loans worked, chances are those who couldn't pay them back would not borrow them in the first place.

So write your local representative and tell them not to ban payday loans. Tell them you want to see education reform that teaches kids useful skills like how credit works and not useless skills like writing a haiku.

This past Februrary, the Carson city Planning Commission voted unanimously to require conditional-use permits for all payday loan companies.  For the last severals months the commission has been thinking about implementing other regulations on local payday lending businesses.

The payday lending industry has greatly opposed this measure and, this last Tuesday, were put slightly at ease.  The City Council voted 5-0 (again, unanimously) to reject that proposal.  Instead of requiring a conditional-use permit from every payday loan company, they will only require permits from new businesses.  The existing companies will be grandfathered in.    

The Community Financial Services Association of America agreed and praised the council for their decision.  A member of that association, Sergio Carillo, stated, "They realized the city must be a business-friendly city.  To change the laws halfway through is just unfair to those businesses."

There are currently 11 payday lenders in Carson.  Two of the 11 are currently not legally practicing and operating.  One of them does not have a state license, while the other does not have a business license because of fire code issues.  Although these companies are obviously operating when they should not be, Carillo pointes out that the city should use the existing regulations to "go after" non compliant businesses instead of creating new ones for the entire payday loan industry.

One member of the council, Lula Davis-Holmes, agreed with this sentiment by adding, "Why punish nine businesses for the actions of two that we need to regulate?"  The council was able to appropriately consider the situation and realize that a few individual businesses, who just happened to be payday loan companies, were operating illegally.  But, their poor actions should not be used as the rope to hang the entire payday loan industry in the city. 

The Center for Responsible Lending, hereafter referred to as IWAC (Idiots Without A Clue,) has said they do not support a ban on rollovers for payday loans. They claim that banning rollovers does nothing to prevent the "predatory" practices of payday lenders.

IWAC uses the following example to illustrate. With rollovers, someone can borrow $300 for two weeks for a $45 charge. If they cannot pay the loan back at the end of the two weeks, they can simply pay the $45 charge to extend the loan an extra two weeks to give them time to pay it back. They still owe $345 at the end of those two weeks.

On the flip side, if rollovers are banned, a borrower can borrow $300 for two weeks at a $45 charge. At the end of the two weeks, they pay back the $345 and get another two week loan of $300 for a $45 charge. Yes, I am being dead serious, this is exactly what they said, try not to laugh.

Leslie Parrish, the Senior "Researcher" at IWAC, said ""When rollovers are banned, the industry simply replaces them with back-to-back loan flips that continue to ensnare people in long-term debt carrying an annual percentage rate of 400 percent."

Long term debt? Did IWAC not just say that at the end of the two weeks, the loan and fee was paid back in full? Is two weeks long term to these morons? They say this because borrowers are not allowed to get a second loan until the first loan is paid back.

This means precisely the opposite of what IWAC is claiming. It means that without rollovers, borrowers cannot get caught into any kind of long-term debt, because they cannot infinitely extend the loan. This serious lack of logic from a supposed researcher is astounding!

Even more astounding, the public is gobbling this up! How can people side with those who are ignorant of the facts, who present them falsely, and who haven't got a clue what they are talking about?

What IWAC is really saying is this: we can't stop at banning rollovers, we have to ban payday loans outright. Anything short of a 36% APR cap is a failure to them. These people are complete and total nutjobs.

And if the day comes that payday loans are banned, and IWAC has a party to pat themselves on the back, I for one will be laughing. I will laugh at them when unemployment has a spike as the thousands upon thousands of payday lending employees are suddenly out of work.

I will laugh when people in need of short-term credit now have nowhere to go except a bank, who will turn them down if they don't have superior credit scores. I will laugh when overdraft fees, finance charges and other bank fees make payday loan fees look like pocket change. Oh wait, they already do...

And after I'm done laughing, I will die out of udder shock that a confused public took financial advice from actually believed an organization that was founded by two of the top 25 culprits of our world's financial collapse. Payday loans are great products and not in any need of restrictions and regulations.

There was recently an article written in The Sun News, a South Carolina paper, concerning the option of a payday loan.  The article was written by Craig Conwell and has some very valid and interesting points that I wanted to briefly summarize.  

 Craig is a 42-year-old man who successfully graduated from college and had numerous small businesses.  He has been professionally successful, but has also had some very hard times.  He says, "...there have been times when I did not know if I would make it.  And I would not have made it without the sole institution that was willing to work with me on small loans over a short period of time, and that is the payday lending industry."

Craig is like almost everyone in our great nation.  He has ups and downs.  He pointed out that while he was having financial struggles, banks and other lending companies weren't interested in helping him with immediate financial needs.  They of course would give a loan for a car or house that would take years  (and plenty of interest) to pay back, but small short-term loans for immediate needs were not something they were interested in.

There are some in South Carolina who think that they should adopt the same legislation that Georgia and North Carolina passed.  However, the only thing that happened in those states was that payday lending was banned entirely.  A study later showed that consumers in those states had more bankruptcies and credit problems because of it.  

The major issue is-what will take the place of payday loans if they are done away with?  In the previously mentioned states, there was no help for those who needed short term loans.  It can be very hard to find an affordable alternative.  

Payday loans are a viable and reliable option.  In these hard economic times, it seems ridiculous to take away financial options.  People need more options, not less.   

Senator Dick Durbin is on a quest to kill payday loans. His legislation, "Protecting Consumers from Unreasonable Credit Rates Act," proposes a federal interest rate cap of 36% on all loans.

His support for the bill is of course weak and unfounded. Less than 3% of American families use payday loans. I think Durbin should try and find another scape goat for our economic woes. Also, over 90% of repeat borrowers pay their loans back on time. That's a far cry from bankruptcy.

A Clemson University study already laid to rest the idiotic rubbish that payday loans are causing anyone to go bankrupt. It simply is not true.

Durbin goes on to say that excessive rates are often hidden. Hidden? The Congress that Dick Durbin is a member of passed this little old law called the Consumer Credit Protection Act. In it, you can find the Truth in Lending Act.

That little piece of legislation requires the full and complete disclosure of all rates and terms of loans, including payday loans. There is nothing hidden about a 400% APR. It has to be displayed prominently and the customer has to be made fully aware of it before they can receive a loan.

The quote of the day, however, comes from Lynda DeLaforgue, co-director of Citizen Action/Illinois.

"People need access to good and clear credit,” DeLaforgue said. “But we don’t need access to unfair, predatory loans that strip people of their dignity, strip people of their assets and send them into bankruptcy."

My gosh, for someone financially well off who has never received a payday loan, she really does have some strong feelings about them. How do the 6 million or so people getting payday loans each year feel when someone tells them they have no dignity?

Strip people of their assets? What assets? Do payday lenders waltz into people's homes and take their belongings? Do they have the deed to their homes? Do they seize their investments? I would love to know which assets DeLaforgue is speaking of here besides the cash owed for the loan.

Durbin also had Ramon Bonilla, poster child for this bill, explain how payday loans drove her to bankruptcy. Count on liberal creampuffs in Congress to find the needle in the haystack to illustrate their point...

The truth is payday loans have helped millions upon millions of people. A vast majority of borrowers end up better off for using payday loans. Very few end up worse off. It is not that the product is inherently evil or predatory that those few people ended up worse off. It's because they borrowed money they could never hope to pay back.

Education is the key, not regulation. Our schools shouldn't be wasting time teaching arts, poetry and other useless skills and knowledge. Schools should be giving kids knowledge of the real world and how it works. Credit is understood by so few, you have to wonder why no one introduces legislation to require it to be taught in schools...

If people better understood credit and payday loans, then those who should not be borrowing payday loans probably wouldn't do it anymore. Then payday loans are still around for those who need them and know how to use them (ie: pay them back on time.)

The House Financial Serivces subcommitee is preparing to legalize payday loans with a 391% interest rate.  This subcommittee is in charge of consumer credit issues with Luiz Gutierrez as the chairman.  

Gutierrez now has a "power" plan that is suppose to help the payday loan industry.  However, many of it's provisions would be detrimental for payday loan companies.  Critics of the payday loan industry say that the industry is "pretending" to oppose his bill.  I do believe that, in this case, the opposition is sincere and warranted.

The bill contains regulations that are extremely stringent.  The basic aspects of the measure include capping the annual interest rate for payday loans at 391 percent, ban "rollovers"-which allows the borrower who can't afford to pay off the loan to renew the extend the loan with a fee.  The proposal would also prevent payday lenders from suing borrowers who don't pay back their debts, or garnishing wages from the borrower to collect the debt.

That last point of not being able to take the appropriate measures to collect the money that is owed is, by itself, very reasonable grounds to oppose the measure.  If that were to pass, it would essentially be impossible for payday lenders to collect any of the money they lend.  

The current proposals for regulating payday loan companies are very flawed, with regulations that would cause the complete elimination of payday loan companies.  In order to regulate this industry appropriately, there needs to be a bit of compromise from those who are "protecting" consumers.  Payday loans are a valid and essential resource for those needing short-term loans.  Hopefully there will be an appropriate and fair resolution.