The op-ed at the Seattle Times is typical of the criticism that payday lenders endure.
First of all, who the heck is Fred Corbit? I mean, people might also say, “who the heck is Clark Reilly?â€. The difference between Corbit and myself is that Corbit doesn’t rely on any actual published data to make his case, whereas I try to back up everything I say.
Corbit says, “Instead of taking a one-time, short-term loan, many payday-loan borrowers fall into a cycle of long-term, high-cost debt.â€Â There’s that cycle of debt claim, but because the editors at the Times don’t ask for evidence, Corbit’s claim goes unchallenged.
It looks like Washington State changed its law in 2010 to limit the number of payday loans a person could use each year to eight. I don’t understand government should decide how many loans someone can take out, but I’m not surprised by this law, either.
So Washington actually publishes information on loan usage. Here’s the 2009 report. 66% of loan users were already using loans eight times or less, so why did the government feel the need to restrict the other 34%?
Times are tough. If you need a loan, why should the government say how many times you can use a loan? If it was too expensive, then the customer would use something else.
And nobody seems to be complaining, either. The DFI got 216 complaints in all of 2009, out of 415,371 borrowers. That’s means about one-half of one percent complained. On a per-loan basis, with 3 million loans made that year, that’s – let’s see – a 0.0072% rate of complaint.
I bet the Washington State DMV has a worse record that that!
It also looks like that 2010 law lets people convert to a long term installment loan any time they want to. And from the 2011 report, it looks like payday lenders had a hard time staying in business.
603 stores were around in 2009, reduced to 256 in 2011. Wow. That means almost 60% of the stores just shut down. So that means a lot of people lost their jobs, too.
Corbit said, “regulation of the payday loan industry does not hurt our economy. “  I’d say that, no, regulation doesn’t hurt but over-regulation should does!
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4 users commented in " Payday Loan Facts Dispute Seattle Times Op-Ed "
Follow-up comment rss or Leave a TrackbackI’ve been in the Payday Loan business since 1999 Often I’m asked to defend myself on the MORALITY, or ethics of Payday Lending: This is the response I give:
In regards to my morality with the payday loan biz, keep in mind that our industry was created by banking.
The banks brought together a prefect storm to screw the ordinary citizen.
1: They started to hold checks that were deposited into clients accounts. Sometimes for up to 10 days (even though the bank gets the money overnight).
2: The processing of a check now happens instantly. You write a check at Walmart, and that money is OUT of your account by the time you pickup the last bag.
3: Banks computers follow a special protocal to move the transactions around in order to do the most possible damage. LARGE amounts are moved to the top in the hope of bouncing as many small transactions as possible. (this is not a happy accident).
4: The individual transactions are dipped TWICE, if a client uses a debit card, the account is reduced by the amount of the authorization, then if the account is negative, it is hit for when the merchant clears the account a day or two, or three later (this is all crap as clearing happens overnight and the software moves the transactions around to maximize impact).
5: The amount paid to payday loan companies is DWARFED by the amount of NSF fees collected by banks. If you review Bank of America’s financial statement, they earned more from NSF fees, than on ALL credit card interest, fees, and other revenue combined.
So, do I have a moral problem with a customer paying a $45 fee to a payday loan company in order to avoid $300 in bank charges? No. I don’t have a problem with that at all. And neither does the customer.
I think the solution to payday loan high rates and high default rate on these loans is not in capping rates, prohibiting these loans or other similar quick fix ideas but in a well thought approach, creative and innovative that can focus on things like educating people about managing their finances to developing better indicators of affordability and screening of potential borrowers.
I always like to hear opposing viewpoints. This is a great post, Clark Reilly!
I especially like that you use real numbers and facts from Washington State Gov’s own departmental reports. The comparison to the DMV is one we can all relate to!
I also agree with the two well thought out comments posted before mine. Miro has a point- the banks will charge exorbitant rates of their own and they’re sneaky about it.
And as Mark said, consumer financial education is better than some band-aid fix or nanny government.
I’ve no doubt that a large percentage of payday loan customers don’t have too much complaint – people aren’t stupid, and the costs of payday lending are common knowledge…. I expect Wonga to enter the English language any time now, in a similar way to McJob. Take the money, pay it back, moan about how much it cost, repeat.
But what does this poor excuse for ‘research’ actually tell us? The fact that customers were treated “with dignity and respect” is meaningless. How is that defined? It can mean completely different things to a customer or a regulator and I suspect the ambiguity in the question is deliberate. Of course payday lenders treat you with dignity and respect when you’re borrowing from them… that’s just basic customer service. If they didn’t, people would just use a different payday lender.
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