By Terry Kibbe
Payday loans have been the subject of much debate-condemned by some self-described consumer advocates as risky, while others are willing to take a more realistic view of how these bridge loans are used in the market place.
The Center for Responsible Lending and its affiliate Self-Help Credit Union, for example, are aggressively working to shut down payday loan shops and have been successful in eliminating payday loan stores in Georgia and North Carolina. In Georgia, the Center claimed that eliminating payday loans saved consumers $154 million per year-but that claim was baseless.
When payday loans disappeared in Georgia, consumers actually paid higher costs in overdraft bank charges and late fees. Economist Donald Morgan (Federal Reserve Bank of New York) noted that when payday lenders were forced to shut down in Georgia, it was the credit unions that reaped big profits. Morgan recently told Forbes Magazine that, "interest rates on overdrafts charged by credit unions and banks can exceed 2,000%, dwarfing the high interest rates on payday loans."
"Credit unions, he adds, have been especially hurt by payday lenders cutting into their overdraft fees - bounced - check revenue at the typical credit union can amount to 60% of net operating income.
Morgan also questioned the validity of the research from the Center for Responsible Lending saying the Center "overstated the number of problem borrowers." He noted that banning payday loans actually leads to more people bouncing checks, filing for bankruptcy and fighting with collectors. After payday loans in Georgia were banned in 2004, Morgan found, "bounced checks in the Fed processing center in Atlanta jumped by 1.2 million, a 13% increase."
A separate report in the Norfolk, Virginia metro area revealed that the majority of payday borrowers are middle income, educated consumers who are using the bridge loans in a responsible way.
The reality behind payday loans is far different from the bleak picture created by the Center for Responsible lending and the Self-Help Credit Union. Consumer advocacy is the false face shown when the Center for Responsible Lending works to ban payday loans. It's about profit for the Self-Help Credit Union which has thrived in states where pay day loans have disappeared.
The Self-Help Credit Union should look in the mirror when criticizing those engaged in aggressive lending. Self-Help typically pays between zero and four percent interest on the loans it obtains, many of which come from government-supported entities. But Self-Help charges substantially higher interest to consumers. In 1998, the last year it reported interest rates on its publicly disclosed federal tax form, the Self Help Venture Fund reported that their average interest rate was more than 10 percent.
The Center for Responsible Lending and the Self-Help Credit Union should admit that their own overdraft and bounced check fees are far more burdensome than any payday loan charge. In the free market, consumers have the luxury to pick and choose what is best for them. Payday loans are just another financial tool, just like a checkbook or credit card. When those choices are taken away, consumers pay an enormous price.
The Center for Responsible Lending's real mission to is shut down payday lenders by fueling consumer angst and fear, while constricting consumer choice. Perhaps the Center can admit that consumers are actually smart enough to make their own decisions about how to run their finances and make it from one pay check to the next.
Source:
http://www.denverpost.com/commented/ci_8548818?source=commented-opinion |
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