Dear Mr. McAuliffe:
I’ve noticed that you are spending quite a bit of time denigrating payday loans. From what I understand, you belong to the category of politicians that pay a lot of attention to polling. What you don’t understand, however, is that you are wasting valuable time, effort, and energy on an issue that less than 3% of Virginians actually care about.
You see, payday loans are not used by that many Virginians or Americans. Last year, somewhere between 6 and 9 million Americans used a payday loan. Over in Virginia, that equates to about 150,000 and 220,000.
I can guarantee you that fewer than 5% of the rest of Virginia has ever even heard of payday loans. Most who have know little about the benefit they actually bring to those that use them. So you are speaking to a very tiny group of people about an issue very few understand or care about.
In truth, you are being manipulated by various payday loan opponents who have a vested interest in seeing this option be curtailed. The Center for Responsible Lending is usually the chief purveyor of mendacities regarding payday loans. This is because they are an arm of the Self-Help Credit Union, whose aim is to kill payday loans so they may siphon off those customers. Unfortunately, the amount of overdraft fees charged to Self-Help customers vastly exceeds that of fees charged to payday loan customers.
A few words about what a 36% rate cap means to payday lenders. It kills them. Unfortunately, if you have a look at the risk of alternatives below, you’ll discover why that would be a really bad idea.
A) Borrow from friend/relative/employerâ€¨
Risk: Complication of important relationship, embarrassment
B) Credit Card Cash Advance â€¨â€¨
Cost: About $1 per hundred every two weeksâ€¨â€¨
Risk: Fail to pay; credit rating is damaged
C) Pawn somethingâ€¨â€¨
Cost: $9.50 per hundred every two weeksâ€¨â€¨
Risk: Fail to pay, you lose the personal item.
D) Payday Loanâ€¨â€¨
Cost: Averages $16 per hundred every two weeksâ€¨â€¨
Risk: A collection agent tries to recover whatâ€™s owed; no damage to credit rating; no personal item at risk; no personal relationship at stake. â€¨â€¨
Myth: â€œCycle of Debtâ€ – 94% of loans are paid back on time â€” that statistic is available in every single SEC filing of all public companies.
E) Online Payday Loanâ€¨
Cost: $25 â€“ 30 per hundred borrowed every two weeksâ€¨
Risk: Same as regular payday loan, but industry is unregulated and identity theft is easier.
F) Bounce a checkâ€¨â€¨
Cost: Averages $45 per hundred borrowedâ€¨â€¨
Risk: As soon as you bounce one check, you risk creating a domino effect, causing other checks to bounce and running those fees even higher.
Virginia residents are not stupid. They know a bargain when they see it. Thatâ€™s why 25,000 payday loan storefronts exist in America. Thatâ€™s why millions of American use it as an option. Thatâ€™s why opponents never, ever bring up the fact that the number of complaints about payday lenders are miniscule.â€¨
The FDIC said a lot more in their November study of bank and credit union overdraft programs. In 2007, payday lenders provided 154 million loan transactions and collected $6.8 billion in fees.
But that same year, bank and credit union accounts were overdrawn by consumers 1.22 BILLION times, generating $35 BILLION in fees.â€¨â€¨This bill will force consumers into choices they have already dismissed as being impractical, too risky, or too expensive.
Do not be fooled: credit unions cannot fill the gap that will be created, nor will they be able to offer loans at 36% APR. If that were the case, then hoards of competitors would be in business at 36% APR, and they arenâ€™t. Furthermore, not everyone is a member of a credit union and, as noted above, credit unions are just as nasty as banks in dinging customers for overdraft fees.
Even worse, at least 1,000 people will be thrown out of a job during the worst recession in 80 years.
Mr. McAuliffe, Virginia has bigger problems to tackle.
If you would care to discuss this issue, Iâ€™d be delighted. Just contact me at firstname.lastname@example.org