I don’t want to discourage young people like Meena Thiruvengadam from writing smart articles, particularly for financial publications. However, I have to call her out on some unfinished reporting in her article at the National Center for Business Journalism.

David Heath of the Center for Public Integrity claims that payday lending is, “…an easy business to get into”. In order to start a payday loan business, a minimum of $100,000 of capital is required. It also requires knowledge of marketing, proper underwriting, collections, cash flow management, and proper location selection. Competition at the storefront level is fierce, as the market achieved saturation a few years ago. In the online arena, a minimum of $2-3 million is necessary. Along with the capital, a robust lead generation network is necessary, along with sophisticated selectivity protocols and algorithms to reduce potential defaults. I saw dozens of online start-ups lose everything because they didn’t have the proper knowledge.

The author claims, “As the economy worsened, the ranks of payday lenders grew”. This is false. The storefront industry began to contract as early as 2008 as the market achieved saturation. Online lending did capture some market share, however. It should also be noted that as the economy worsened, fewer people could use payday loans as one must have a job in order to get a loan.

Most egregiously, Josh Baugh of the San Antonio Express-News makes flat-out false statements that Ms. Thiruvengadam fails to challenge. Mr. Baugh’s assertion that “so many of these people take out loans of $50 and take five years to pay them back” is complete nonsense. The average loan is $400, 94% of loans are paid back on time (a fact found in SEC filings of public companies), CFSA members are limited to 4 renewals of any loan or fewer if state law decrees as such.

It is even more alarming that Mr. Baugh claims that, “payday loans today have gotten so complicated that most people don’t really know what they’re signing up for.” Clearly, this “reporter” has never set foot in a payday loan store. The paperwork is a snap, with all terms clearly disclosed per state and federal law. The basics are provided on one page. In some states like Texas, there will be many more pages involving required disclosure, but there is nothing hidden nor are there terms that change that front page’s primary terms.

Mr. Baugh points to consumer groups as sources for stories, yet that would only provide a biased reflection of the product, as these groups exist solely to handle complaints (which number less than 0.5% of all loans made). Regrettably, the author relies solely on the uneducated Mr. Baugh and NGO’s that have a lengthy history of misrepresenting and – in many cases – falsifying information about the payday loan industry. Never once does she mention the litany of information available at the website for the Community Financial Service Centers of America website, which has the most comprehensive research archive, and non-partisan studies that debunk the numerous myths perpetuated by payday opponents.

The article on payday loans needs to be updated and expanded. The suggestions provided in Ms. Thiruvengadam’s article only serve to further misrepresent the industry. It does not serve journalism, and lowers the standards for unbiased reporting. I would welcome the opportunity to provide my own guidance in a separate article.

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