The Center for Responsible Lending (CRL) has a history of distorting the truth concerning payday loans (PDLs), used by 6 million Americans to meet short-term credit needs. However, the CRL is merely a front for the Self-Help Foundation, a credit union in direct competition with payday lenders, whose founders were principal purveyors of destructive subprime mortgages as evidenced in recent exposÃ©s by 60 Minutes and The New York Times.
This time, they’ve cooked up a “report” claiming PDL stores “are most heavily concentrated in African-American and Latino communities in California”. But what is the methodology behind this “research”? We don’t know, because unlike legitimate, independent studies, their methodology is not revealed. Nor does the report’s “senior researcher”, Leslie Parrish, have any discernible background in statistics, economics, public policy, government or business.
This is another scurrilous attempt to bamboozle the media, politicians, and the public with an inflammatory headline. The only problem, besides the CRL’s reprehensible and cynical disingenuousness, is that their “report” reveals an undercurrent of racism.
We shouldn’t be surprised. They tried this in 2006 with a report entitled “Race Matters” which Dr. Thomas Lehman, an Indiana Wesleyan University economics professor, said “contains severe weaknesses and presents conclusions that are overstated at best, and misleading at worstâ€¦perhaps motivated by an ideological bias against the PDL industry”.
The primary assertion of the CRL’s new “report” is that “Payday lenders are nearly eight times as concentrated in neighborhoods with the largest shares of African Americans and Latinos as compared to white neighborhoods, draining nearly $247 million in fees per year from these communities. ”
Payday loans are used by those in need of short-term credit and earning $25,000 – $50,000. So, naturally payday loan stores will cluster in neighborhoods with lower incomes, just as gas stations cluster at freeway exits, and retail businesses cluster in shopping malls. It has nothing to do with race, other than by coincidence.
Furthermore, $247 million in fees were not “drained” from anywhere. The language infers that this money was taken without its owner’s consent or without them getting anything in return. Baloney. What consumers get when they take out a payday loan is short-term credit they can’t get anywhere else. They use that credit to make ends meet, and SEC filings of PDL companies show a 94% payback rate.
This brings us to the most egregious example of the CRL’s sordid tactics — the outright claim that payday lenders cluster where they do purely because of racism. This claim is not only patently false, but exposes the CRL as both race-baiters and racists themselves.
The idea that a business would deliberately establish a operational policy driven by racist policy is ludicrous in the extreme. Where a payday loan store, or a store of any kind, is located depends on dozens of variables. The idea that practical operational considerations would somehow be trumped by the neighborhood’s ethnicity shows the despicable lengths to which the CRL will go to further their agenda.
That’s the race-baiting portion. The CRL’s racism is evident in their call for a 36% APR rate cap on payday loans. Due to the 6% default rate and average monthly store overhead of $8000, payday lenders must make at least $15 per hundred to make a profit. A 36% rate cap earns them $1.38 per hundred, which cuts revenue by 90%. One look at the financials of any public PDL company will show how that puts them out of business.
That forces consumers to their only other short-term credit option â€“ bouncing checks. The December 2008 FDIC Study on Overdraft Programs and NSF fees proves that this method of short-term credit is four times more expensive than a payday loan, and can snowball into even higher fees.
The CRL’s call for this rate cap is an effort to rob minorities of their freedom of choice, and strip them of more of their hard-earned money than is necessary. Why? The CRL doesn’t like freedom. It doesn’t like people to do as they choose with their own credit. The CRL wants minority consumers to be their economic slaves, by making them dependent on their own credit unions’ overdraft protection plans and oppressive lending terms.
Leslie Parrish should hang her head in shame, along with the rest of the scoundrels at the CRL. The only legislation involving this organization should be one banning them permanently.
Lawrence Meyers is President of PDL Capital, LLC, a financial journalist and analyst, and writes the occasional article for Bloggernews.net. He can be reached at firstname.lastname@example.org