The New York Timesâ€™ recent editorial on payday lending (PDLs) unwittingly provides an argument in favor of permitting PDLs in states that have banned it. In addition, the Times renders an unfair judgment on PDLs by relying on data from The Pew Charitable Trustâ€™s biased study, and a mercenary activist organization.
The Times alleges that banks permit Internet lenders to â€œautomatically withdraw payments from a borrowerâ€™s accountâ€ in states where such lending is banned. This is a tacit admission that by chasing away storefront lenders in the first place, product demand did not vanish, and borrowers were instead forced to a more difficult product. This should come as no surprise, given the New York Federal Reserveâ€™s study, â€œPayday Holidayâ€, which demonstrated that consumers were worse off without PDLs. Indeed, any expectation that a consumerâ€™s financial position would magically improve by banning these loans has been dashed by the Timesâ€™ own reporting. Yet rather than investigating underlying issues and the productâ€™s opponents, whom I have challenged for years, the Times demonizes banks.
Specifically, the Times claims PDLs are â€œbased on deceptionâ€¦structured in a way that inevitably turns a short-term obligation into long-term debtâ€. The claim, based on Pewâ€™s data, runs contrary to data collected by Texas and Washington. In Texas, the OCCC reported that the mode (most frequent data point) for renewals was one, and the average number of renewals was two, not ten, as Pew claims.
The Times further parrots Pewâ€™s claim that, â€œBy the fifth month, someone who borrowed $375 will have paid about $520 in interest alone, â€ which in turn parrots the Center for Responsible Lending, whose math doesnâ€™t add up. CRL’s report claims: â€œThe average PDL borrower repays $793 for a $325 loanâ€. That is, they pay $468 in fees plus the $325 principal. Fees are thus 1.44 times principal advanced. Yet Advance America, the countryâ€™s largest lender, reported $4,296,493,000 in principal loaned in 2008. If the CRL were correct, revenue from advances would be 1.44 times principal, or $6,186,949,920. Yet revenue was only $676,436,000 , merely 10% of what CRL claims.
CRL was wrong. Pew perpetuated the falsehood. The Times didnâ€™t fact check, leading it to false conclusions. It can do better.
The facts are simple. There is a need for short-term credit. Payday loans are neither the least nor most expensive option. A GWU survey demonstrated a 88% satisfaction rate with PDLs . The Better Business Bureau fielded only 3,300 PDL complaints nationwide in 2012 over one hundred million transactions , for a 0.0033% complaint rate.
Only four percent of the Timesâ€™ audience uses PDLs. The other 96% will be more interested in an investigation of the Center for Responsible Lending. The Times should ask why CRL spends $7 million a year in contributions to continually place the livelihoods of workers in the payday loan industry in jeopardy, while paying themselves and employees as affiliated organizations fat salaries .