Over at The Consumerist Blog, attorney Sam Glover made the kind of post that demonstrates the ignorance of those who have never had the need for short-term credit.  And he should be ashamed and embarrassed by his elitist, nonsensical stance on credit in general. Â
His first sentence should give readers a clue how clueless Mr. Glover is. Â “For about 30 years, there has been effectively no limit on the interest rates lenders can charge.” Â False. Â Almost every state has a general usury law; commercial lending usury law; and legislation capping the fees payday lenders may charge.Â
He also perpetuates the long-debunked myth that short-term loans — payday loans, tax refund anticipation loans, auto title loans — should be compared on an APR basis to more traditional long-term credit such as mortgages.Â
Mr. Glover — EDUCATE THYSELF. Â As numerous studies have pointed out, including one by Dr. Thomas Lehmann of Claremont-McKenna college, payday loans are two-week loans, not year-long. Furthermore, the consumer doesn’t give a hoot about APR’s. Â They just want to know how much in real dollar terms their credit will cost. Â And, GASP, 6 million Americans CHOOSE to use that credit.Â
But Mr. Glover’s intellectual laziness doesn’t stop there.  He claims “We all know how we got here. Lenders made stupid loans and charged exorbitant fees to consumers who had no chance of paying them back. ”  WRONG.  Lenders made stupid MORTGAGE loans to irresponsible borrowers who decided that — future be damned — they’ll put zero down and take that variable rate mortgage without THEMSELVES considering that they couldn’t pay it back.  That’s right, Mr. Glover, the borrowers actually have responsibility for our economic crisis, too.  Â
 We’re not done.  “A 36% rate would not interfere with most lending.”  WRONG.  Mr. Glover is too busy to actually spend time visiting with payday loan operators or even reading the public SEC filings of the public PDL companies.  If he actually bothered to educate himself before spewing his verbal diarrhea, he would learn that the average default rate on payday loans is 6% and average monthly overhead for a PDL store is $8000.  With those numbers it is IMPOSSIBLE for payday lenders to stay in business without charging at least $15 per hundred borrowed.  And, yes, I have all the data Mr. Glover needs to back up that assertion — if he’s at all concerned with correcting his irresponsible statements, such as, “In order to continue doing business, short-term lenders would have to do a real risk assessment of borrowers and charge accordingly, instead of using aggregate risk data to treat everyone to the same, extremely high interest rate.”
“Some loans are just too risky to allow,” he claims.  Yes, as we’ve learned from the mortgage implosion, six-figure loans made by irresponsible lenders to irresponsible borrowers, which are then repackaged multiple times into CDO”s and ABS’s, are too risky.But not payday loans.  They’ve been around for twenty years and over 6 million Americans willingly choose to use them every year.  Why are 25,000 stores available to serve customers?  Because there is a need for short-term credit. As usual, self-proclaimed saviors like Mr. Glover, who purport to understand how debt works, forget the second part of every debt equation.  The price of credit is RELATIVE TO RISK.  My God, that’s the FIRST lesson of Debt 101!   Â
Consumers can take care of themselves, Mr. Glover. Â You seem to be in favor of the kind of paternalistic government that prevents customers from making their own choices. Â Of course, when pressed to address the more serious issues — such as selling alcohol to alcoholics and permitting obese people to eat McDonald’s as much as they like, the hypocrisy of arrogant and misinformed blowhards like Mr. Glover becomes all too apparent.Â
But again, does anyone think Mr. Glover has been in need of short-term credit?Â
Normally, this is the part of the argument where I point out the studies by The New York Federal Reserve and Dartmouth College, which unequivocally demonstrate that a 36% rate cap — which is a de facto ban — harms consumers. Â Normally, they’d have to bounce checks to obtain that credit, at a cost of $60-90 per check. Â Now I’m no fan of bank NSF and ODP fees, but a November FDIC report also shows that without NSF fees, every major bank in the country would have lost money. Â
By capping NSF fees at 36% as well, consumers in need of short-term credit can’t even turn to the banks! That only leaves them two places to go —  your local loan shark, or Mr. Glover’s doorstep.  Â
I wonder how much he’d charge for an unsecured loan?   Â
11 users commented in " Payday Loans: Sam Glover Needs An Education "
Follow-up comment rss or Leave a TrackbackMost critics have never walked a mile in the shoes of those who use and “need” these products and never will because they have access to mainstream credit options that these people don’t. Their efforts only hurt the ones they purport to be helping and they claim to be representing millions of Americans who don’t even know who these groups are. Some simple perspective on a 36% APR that even Mr. Glover can understand (hopefuly)…
Sally meets Harry. They barely know each other (yet) … and Harry asks to borrow $100 from Sally for 11 days. Sally says “sure, but is $5 extra when you pay me back too much to ask?”. $5 extra doesn’t shock Harry’s conscious and he agrees. Watch the movie to see how Harry and Sally eventually make out… but if Sally posted an APR for that $5 extra for 11 days it would be “165%”..huh!!?? If Harry saw that he would have thought he was going to pay $165 to borrow $100 from Sally… NOPE! Only $5.
Hopefully for consumer groups and Mr. Glover, other than using the word “conscious”, they can see the absurdness of a 36% APR ceiling and its unintended consequences. The APR for short term loans is “totally” misleading for consumers and is meaningless.
Can you post a link to the article on his site. I would like to read it and possibly comment on it
Here’s the link to his “article”.
http://consumerist.com/5168071/national-usury-limit-could-reduce-number-of-people-paying-debt-until-they-die
It’s rare that individuals truly understand the complexity of short-term lending and all of the misconceptions associated with it. Unfortunately, most people fall victim to the misconceptions and don’t take the time to discover the real truths. In addition, our societal forces have plagued us with unaccountability in which the masses seem to think that someone else is ultimately responsible for their decisions and actions. Are we all so naive and incompetent that we really believe that others force our hands in making decisions whether favorable or unfavorable? The reality is that a 36% APR on a two week loan is ridiculous and the requirement of having to present a two week loan as an Annual Percentage Rate encourages a false perception of the product. An instance in which a consumer takes out a payday loan every two weeks (every payday) for an entire year is an extremely rare scenario. Anyone who does such is clearly in need of more than a short-term loan.
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Borrowing money and where to borrow it from can be a touchy subject sometimes, but we, like a lot of people, have had to borrow before. Yes there are some places “won’t name any names here” that we have borrowed from and it was a joke. They charged us way too much. With that said, there is a site http://www.cashloancity.com that drifts through the good and bad and finds the best for you. We trusted the site for a $200 loan the other day and I’m glad we did. We will be back when we need it.
Thanks so much for this post–it’s so frustrating when writers impugn the industry without the financial literary to understand the argument they are making!
Thanks again for advocating for consumer choice!
[…] Sam “Crybaby” Glover is another ideologue who blogs for the Consumerist, which is generally a great website, except for its foolish posts about short-term credit. Crybaby’s feelings are so fragile that when I challenged him via Email on his nonsensical blog post, he refused to engage because I “insulted” him. Suck it up, Crybaby. How do you think the 100,000 people employed in the short-term credit industry feel when you advocate taking their jobs away? That’s something to cry over. […]
It’s sad to see people trying to trash an industry that is still keeping many Americans afloat. I’ve read studies that show that there is no ‘cycle of debt, as many critics try to claim, and that payday loans don’t lead to bankruptcy. This means that these people are merely using their own personal opinions to try to influence others as being the truth. I don’t think it’s right and there should be more voice for those people that use short term loans responsibly.
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You are entirely correct about the APR. What most people fail to realise is that the APR is a yearly figure, therefore the person who takes out the pay-day loan is paying 1/12 of the APR stated.
I reckon if more people understood the APR there would be a hell of a lot less vitriol spouted by the general public which would in turn have a knock on effect with the media as they would be less inclined to berate it so heavily when public opinion has eased.
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