Enough is enough. The Center for Responsible Lending is going to far in their crusade against payday loans. Their latest antics are a downright absurdity and do a disservice to anyone involved in statistics and research.
Their “study” has found that three in four Americans favor a 36% APR cap on all loans. The idea is to show legislators that their constituents support them if they ban payday loans, thus gaining favor with the politicians.
The phone survey questioned 1,004 adults around the country. That was their first mistake. You cannot measure public opinion by asking 1,004 people. That’s an average of about 20 people per state. Could I ask 20 random people in my state what their thoughts are and then conclude that their opinions represent my whole state?
Here’s the best part. This is word for word the introduction given to participants before any questions are asked:
“Some people say that we should crack down on high-cost lending practices in order to restore the health of our nation’s economy. To that end, Congress is considering limiting the amount of interest that lenders can charge to 36% annually. This cap would apply to loans like mortgages and car loans, which are usually less than 36% anyway, but it would also cover high-cost loans, like payday loans and car title loans, which can carry annual interest rates of around 400%.”
They then proceeded to ask if they favored an interest rate cap and so forth. But can we say leading question? How do you think people will respond to your question after you just told them that blathering nonsense?
Now my personal favorite is what comes next. They cited an anecdote of a poor old man who got caught in the debt trap of the predatory payday lenders. Here is their version, word for word:
“A 69-year-old man in Raleigh, North Carolina went to a national chain payday shop every payday for over five years. His total interest paid was over $5,000 —for one loan with a principal that started at $200 and eventually increased to $300. The payday lender flipped the loan over a hundred times,collecting interest of up to $52.50 for each transaction, while extending him no new money. He fell behind on his mortgage and filed bankruptcy to save his home.
Unfortunately, this is a success story from the perspective of the payday lender. Loan documents show they charged this man up to 475% annual interest.”
What?! Seriously?! Does the Center for Responsible Lending just assume we are all doltish fools? How on earth did they manage to find the one in a trillion guy who managed to pay over $5,000 in fees for a $300 loan?
First of all, North Carolina legalized payday loans in 1997. They were then banned in the state in 2001. That’s less than five years. The claim that anyone in North Carolina made repeat visits to a payday loan shop for over five years is a down right law.
Should such a thing have really happened, it was happening illegally. For a while, out of state lenders were trying to lend to residents of North Carolina. But in 2006, all payday lending of any kind ceased in the state.
So it was legal for four years, happened illegally for another four, then hasn’t happened for over three years. The anecdote cited by the CRL is not only irrelevant, it’s probably mentioning a payday lender who was operating illegally, and was probably nothing more than a loan shark.
Law prohibits payday loans from being infinitely extended anyway. In most cases, the loan will stop gaining interest after 12 weeks or so. After that, anything you pay goes to principal. The sheer fact that this man gave someone $52.50 every payday for over five years shows both predatory lending on the part of the illegal lender and sheer stupidity on the part of the borrower.
Wouldn’t you figure a way out of a measly $300 loan before FIVE YEARS! The only thing worse than an abusive lender is a borrower who lets themselves be abused. Fake anecdotes such as this are one in a million and simply not the norm at all.
I’ll just blow through the remaining lies. First, CRL claims that 90% of revenue comes from borrowers caught in the debt trap taking out repeat loans. Borrowers cannot get another loan if they have a balance outstanding first of all. Secondly, who says that just because someone is getting another payday loan that they are caught in debt? Could they just be in need of another loan?
Next they claim that average fees for a $300 loan are around $800. Since this is PHYSICALLY IMPOSSIBLE I would love to see where they got this number from. Oh right, no citation given in their study, just pulling numbers out of thin air. Law doesn’t allow this to happen, no one could ever pay $800 in fees for a $300 loan.
They go on to say that payday lending contributes to bankruptcy. The study they cite is completely flawed, as they only used one particular type of bankruptcy filing, not all bankruptcies. The type they used accounts for less than 5% of all bankruptcy filings. A Clemson University study conclusively showed with real statistics that payday loans do nothing to contribute to bankruptcies.
We do hope the Center for Responsible Lending will try and act responsibly just a little bit. Their lies and propaganda are disgusting and foolish. Payday loans are not harming anyone. It’s people harming themselves if they borrow more than they can afford to pay back.
