Here we go again. Yet another uneducated and/or ideologue opposed to payday loans without understanding anything about them, or alternatives if his call for a ban became reality.

The culprit this time is Errol Louis, a columnist for the New York Daily News and radio talk show host. The allegations are the same as always, but adds words of criticism for politicians who are supporting H.B.1214, Rep. Gutierrez’s payday loan reform bill.

So, first to the usual debunking of Mr. Louis’ claims. He says, “What sounds like a handy loan for a person caught between paychecks – “15 cents per dollar” is typical – always turns out to be a lousy deal.”

“Always”? Huh? I wasn’t aware that Mr. Louis has visited with every single consumer out of the millions that use the product annually. How would HE know whether or not it’s a good deal or not? Simply put, the deal has proven to be good for almost all users. The evidence is overwhelming.

1) 94% of all loans are repaid on time. SEC filings of public payday loan companies bear this out.
2) 154 million transactions occurred in 2008 alone. If it were a “lousy deal”, then there would be no repeat business. And don’t give me the claptrap that consumers have no other options. They do. They choose payday loans as being the best option for them.
3) If the loan is used responsibly and the needs for which it was utilized are fulfilled, how can it be a “lousy deal”? Because Mr. Louis says it is?

Then comes the usual ridiculous APR statement. We’ve been through this. Every major study has concluded that the price signal the consumer responds to is the flat fee charged, not the APR, which is only provided because TILA requires it.

“The damage to consumers is vast. An estimated 19 million borrowers – mostly young, from low-income families – take $51 billion from the legal loansharks and cough up nearly $9 billion a year in fees, according to the Consumer Federation of America.”

Once again, Mr. Louis chooses to buy into the rhetoric of an anti-capitalist organization whose primary spokesman was made to look a fool at the Gutierrez Subcommittee hearing. Mr. Louis seems to consider that someone who needs to pay for a child’s doctor visit, get their car fixed to get to work, get a magician for their kid’s birthday party, or pay a utility bill is “damaged” because they chose to borrow money.

Mr. Louis is out of touch. This isn’t damage. It’s life. It’s reality. It’s paying for things that need to be paid for when credit options are limited.

His facts are also wrong. Users of payday loans are neither “mostly young”. In truth 68% are under 45 years old. I would hardly call 45 years old “young” (alas). As for most being from “low-income families”, the majority earn between $25,000 and $50,000. Mr. Louis not only doesn’t define “Low-income”, but — DUH — if you are earning six figures you likely don’t have a NEED for a short-term loan.

“The lenders typically let the borrower roll over the total to the next paycheck (and the next, and the next).” False. 94% of loans are paid back on time.

Mr. Louis cites the legislation that capped lending rates to the military at 36% APR. What he doesn’t cite is how servicemen are now limited in their credit options as a result. Payday lenders cannot afford to loan to the military anymore due to the default rate and overhead. While the gap has been partially filled, many servicemen have now been forced to military charity (Mind you, it’s never made sense to me why our military 1) isn’t paid more and 2) The Pentagon doesn’t offer low-interest loans since they have direct access to borrowers’ paychecks).

And don’t even get me started on the flawed methodology of the DOD report that recommended this foolish rate cap. Not only did it use data from the ultra-biased CRL, it relied on the research of Dr. Stephen Graves and Christoper Peterson, whose work I already debunked and for which they have never offered a rebuttal.

Mr. Louis supports the lunatic concept of a 36% rate cap, which as I’ve pointed out may times, bans the product, and forces consumers to MORE expensive options. Mr. Louis — are you really that ignorant regarding economics?

The Gutierrez bill is not a good bill, for many reasons — not the least of which is that this is a state issue, not a federal one. But perhaps Mr. Louis will share with us his idea for alternatives once all these lenders are put out of business. Dr. Graves tried to, and quickly discovered that — OOPS — he never really thought this problem through.

My firm’s standing offer remains open — anybody who can come up with a viable model for a short-term credit product that meet consumers needs and gets lenders the kind of profit they need to at least stay in business — we’ll fund it.

We’ve never received any proposals.

I’ll make another offer to Mr. Louis. Have me on your show so I can debunk all the alternatives you’ll come up with, and you can offer your rebuttal. I have a good radio voice and it’ll be good for ratings.
I promise not to embarrass you too badly.

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