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.  

His first sentence should give readers a clue how clueless Mr. Glover is.   “For about 30 years, there has been effectively no limit on the interest rates lenders can charge.”  False.  Almost every state has a general usury law; commercial lending usury law; and legislation capping the fees payday lenders may charge. 

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. 

Mr. Glover — EDUCATE THYSELF.  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.  They just want to know how much in real dollar terms their credit will cost.   And, GASP, 6 million Americans CHOOSE to use that credit. 

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.   

 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!    

Consumers can take care of themselves, Mr. Glover.  You seem to be in favor of the kind of paternalistic government that prevents customers from making their own choices.  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. 

But again, does anyone think Mr. Glover has been in need of short-term credit? 

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.   Normally, they’d have to bounce checks to obtain that credit, at a cost of $60-90 per check.  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.  

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.   

I wonder how much he’d charge for an unsecured loan?    

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