A spokeswoman from Borrow Smart Alabama, an industry group, contacted the newspaper early last week.
She wrote a lengthy response to the first installment. Above this post is a post with the response from the Center for Responsible Lending (CRL), a predatory lending watchdog.
From Robin Oliver of Borrow Smart Alabama:
You say: "Their prey tends to be the working poor, the military, seniors, those on fixed incomes, without access to conventional credit."
The truth: The average payday loan customer is 39 years old with an average income of $41,000. Lenders do not “prey” on customers at all, and our loans are not typically conducive to seniors or to people on fixed incomes. Furthermore, following a federal law passed in 2007, short term lenders do not lend to people in the military or their families at all. Prior to the passing of this law, they made up an insignificant portion of our customers in Alabama. Last but not least, most of our customers have access to traditional loans and/or credit cards but choose not to use them because they prefer a small, short term loan to meet their needs. For proof, see the testimonials of some of our real customers at www.borrowsmartalabama.com.
You say (via CRL): Short term lenders are "allowed to charge the equivalent of 456 percent interest."
This interest rate is calculated by taking the fee associated with a two-week loan and multiplying that amount by 26 periods in a year. However, in the state of Alabama, a loan can only be renewed once. So, this calculation is extremely off base. Further, the state allows for loans of up to 31 days, which significantly reduces your quoted APR rate. So, these are short term loans typically of two weeks to a month. Applying an annual rate for a short-term loan is quite misleading. Bank overdraft fees, which often exceed $30, or credit card overdraft fees are not described with an APR rate and neither should a short-term payday loan. By any measurement, a $100 a payday loan in Alabama is much less expensive than a bounced check, or a credit card overdraft fee or less than paying $50 to $60 to have utilities restored because of a missed payment. Our customers know this. That is one reason why they choose short-term lending options like a payday loan over the more expensive alternatives. By the way, it should also be stated that the Center for Responsible Lending, which devised this calculation, is funded by a large credit union and a competitor of the short term lending industry. That should be disclosed.
You say (via CRL): "A typical borrower pays back $793 in fees and interest to a payday lending, all for the privilege of receiving $325 in cash."
This is an outright lie on the part for the Center for Responsible Lending. The maximum amount a borrower would pay for a $325 loan is $ $56.88. The State of Alabama does not allow more than one extension on a cash advance and the fee associated with the loan cannot exceed 17.5% percent. Veritec Solutions LLC, the company which supplied the data for the original Center for Responsible Lending report that included this figure, has said in a white paper analysis that CRL misinterpreted the data in order to generate flawed conclusions.
You say: "Short term lenders post revenue of about $6 billion a year."
Compare that to annual revenue of about $480 billion for commercial banks, $84 billion for savings banks and $36 billion for credit unions.
You say: "North Carolina, for example, capped interest rates at 36 percent, becoming one of the 12 states to essentially outlaw payday lending’s excessive fees and interest. Georgia similarly restricts it. … the CRL found that residents saved an estimated $1.4 billion in fees every year."
An independent report issued by the Federal Reserve late in 2007 concluded that consumers in NC and GA “do not seem better off since their states outlawed payday credit.” The report indicates that residents did not save money but ended up paying the anticipated savings and more to banks in overdraft charges and late charges to credit cards. Check it out online at http://www.newyorkfed.org/research/staff_reports/sr309.pdf.
Sincerely,
Robin Oliver
Director of Communications
Borrow Smart Alabama
The CRL's response is on the post above.
