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Reform may be loose on payday lenders
A sign for a "payday advance"
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TEXT OF STORY
Steve Chiotakis: Next week, the Senate begins consideration of the financial overhaul bill proposed by Connecticut Senator Christopher Dodd. Now one highlight of the bill is a proposed Consumer Financial Protection Bureau that's supposed to guard against abusive lenders. But as reporter Brett Neely tells us, the bill may not be as tough on some lenders as it is on others.
Brett Neely: The payday loan industry lends small amounts at very high interest rates. The loosely regulated industry doesn't have a sterling reputation.
Lauren Saunders: It used to be the purview of mob loan sharks.
That's Lauren Saunders from the National Consumer Law Center. She says payday lenders are the perfect definition of what consumers need protection from.
Saunders: We're now seeing payday lenders targeting people with unemployment benefits, you know to offer them payday loans.
But in Dodd's draft bill, only "large" payday lenders will be overseen by the new agency. First, it will have to define what "large" means. That could take a year once the agency gets off the ground, says Ed Mierszwinski at the U.S. Public Interest Research Group.
Ed Mierszwinski: And in a year, you can make a lot of money ripping people off.
He says the payday lending industry actually came out badly in the bill-writing process because there's a path to regulation. Mierszwinski says stockbrokers and other groups managed to water down the draft to the point where it only orders studies rather than new rules for their businesses.
Mierszwinski: And the study is going to be just one more dead forest of trees that is going to say the same thing all the other studies have shown.
Which is that the groups need tougher regulation.
Steve Schlein, a payday lending association spokesman, told me the industry likes things the way they are. Currently, states regulate payday lenders.
Steve Schlein: And there's no federal need to regulate us. The federal government should focus on the industries that caused the economic meltdown.
He says the association plans to keep fighting Dodd's bill as it makes its way through the Senate.
In Washington, I'm Brett Neely for Marketplace.
I lend money on car titles. Like pay day lenders we provide short term high interest loans to high risk cumtomers. Georgia law makers banned pay day lending 3 years ago for 2 reasons: Our officals want to appear as protectors of the poor stupid consumers and 2. They figure the pay day customers they are hurting don't vote any way. Many people can not imagin a person needing a loan for 1 or 2 hundres dollars. The word cash is in the name of my company and 3 years after pay day lenders were shut down the majority of calls I get every day are for pay day loans.
I completely agree with Jon Schultz's comment, and I also agree with Steve Schlein that the CFPA was created to regulate large entities, not a small industry like payday lenders. Too bad the piece didn't really give him a chance to express the opinions of millions of payday lending customers whose voices have been overshadowed by critics who have never actually used the service.
The campaign against payday lending is a witch hunt. You cannot judge a loan by its APR without considering other factors such as the amount and term of the loan, the borrower's other alternatives, and the lender's costs. Even the nonprofit payday loan offered as a public service by Goodwill Industries has a 252% APR.
These consumer groups need targets to criticize to justify their existence. With their invalid stance on this issue they are hurting the very people whom they claim to be helping. Payday loans are used by people in emergencies and they save many people from having to pay higher fees of various kinds. The critics ignore customer satisfaction surveys which show that a large majority of payday loan borrowers feel they have benefited from the service.
This was a biased presentation. I expected better from NPR. Read George McGovern, please:
http://online.wsj.com/public/article_print/SB120485275086518279.html
