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Fed Report on Payday Loan Bans

Date: Tue, 12/18/2007 - 13:30

Submitted by goudah2424
on Tue, 12/18/2007 - 13:30

Posts: 7935 Credits: [Donate]

Total Replies: 11


[quote]December 15, 2007

CFSA On Fed Report: We Told You So

When the Federal Reserve of New York released a shocking study last week implying that banning payday loans might not be the most prudent way to help the working poor, the financial world went crazy. It’s been a long-held assumption of the (quite sizeable) anti-fast cash loan crowd that the world would be a better place without cash advance lending. The assertion that the unpopular short-term, high-interest personal loans disenfranchise already-struggling lower-income consumers is not new, and to date, thirteen U.S. states have decided to “fix” the issue by prohibiting payday loans altogether.

The Fed took an in-depth look at North Carolina and Georgia, two states that have eradicated payday loans in recent years. Shockingly, the report gave evidence that the base of customers who had once taken out fast cash loans to get by are now making equally bad choices and finding themselves in comparable financial trouble – all without cash advance personal loans. Many had accrued significant bank overdraft charges, or were being “hounded” by collection efforts on bills that they had let go alarmingly delinquent. After so many years of debate, it seems that there was some credibility to cash advance lenders’ insistence that their products were a legitimate financial choice for many.

The Community Financial Services Association of America, the nation’s largest trade organization of payday loan merchants, basically scoffed at those who were shocked by the Fed’s report. In a press release reacting to the much-discussed study, the CFSA all but jeered “we told you so!” at their many critics. The CFSA claims that it mandates pro-consumer business practices for its members, and the Association’s spokespeople have maintained for years that fast cash loans are misunderstood by the general public.[/quote]


[quote]Ban on payday loans may cause financial burden, report says

North Carolina, Georgia fare the worst

THE ASSOCIATED PRESS

CHARLOTTE

A ban on payday loans may be leading to greater financial burdens for low-income residents of two Southern states, according to a researcher at the Federal Reserve Bank of New York.

The study concluded that ???????compared with households in all other states, households in Georgia have bounced more checks, complained more to the Federal Trade Commission about lenders and debt collectors, and filed for Chapter 7 bankruptcy protection at a higher rate.???????

North Carolina households have fared about the same, said the report, written by Donald P. Morgan, a research officer with the Federal Reserve Bank of New York, and Michael R. Strain, a graduate student at Cornell University.

???????This negative correlation - reduced payday credit supply, increased credit problems - contradicts the debt-trap critique of payday lending,??????? the report concluded.

Payday lenders offer quick cash advances - for a fee - that customers are supposed to repay with their next paycheck. Borrowers who cannot repay the loan often ???????roll over??????? the loan repeatedly, a cycle that critics of payday loans call the debt trap. Borrowers are drawn to the lenders because, unlike banks and credit unions, they don????????t run credit checks.

Georgia banned payday lending in May 2004. North Carolina has gone back and forth with payday lenders.

In 1997, the state began allowing payday loans. The law expired in 2001, and many small payday lenders closed, but the largest lending chains linked up with out-of-state banks to keep offering the loans. A banking commissioner????????s ruling in 2005, followed soon after by a consent agreement between three payday lenders and N.C. Attorney General Roy Cooper, essentially shuttered the industry????????s doors in the state.

???????The thing is with payday lending, the business model itself is dependent on the debt trap,??????? said Uriah King, a researcher at the Center for Responsible Lending in Durham. ???????They couldn????????t open up their doors if they couldn????????t put short-term borrowers into long-term debt.???????

King criticized the report because it drew on data from the Federal Reserve????????s check-cashing centers in Atlanta and Charlotte, which processes transactions in states other than Georgia and North Carolina, including those that do allow payday loans.

Last month, a report by the UNC Center for Community Capital prepared for the N.C. Commissioner of Banks concluded ???????the absence of storefront payday lending has had no significant impact on the availability of credit for households in North Carolina.???????

That study was criticized by Community Financial Services Association of America, a trade group that represents 60 percent of the industry, because it included survey response data from people who had never tried to get a payday loan.

???????Households without access to payday loans are forced to use costlier credit and suffer greater financial difficulties,??????? said Darrin Andersen, the president of the financial-services association.

And while payday lending may not be the correct choice ???????all the time??????? for consumers, ???????it????????s certainly a smart choice from the alternatives,??????? Andersen said.[/quote]


lrhall41

Submitted by goudah2424 on Tue, 12/18/2007 - 13:32

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Just to let you know, I use both sites, depending on the research I need to do. I am a long supporter of this site and it doesn't hurt to have more than one site to obtain information.

Shazzers, and others, be careful what you wish for and say. There are individuals who moderate this site that don't know everything, but put forth the opinion that they do. That's probably why a number of long-time supporters of this site have decided to leave and look elsewhere for a less hardline (my opinion is the correct opinion) approach than some moderators offer here. IMHO.


lrhall41

Submitted by on Sat, 12/22/2007 - 08:30

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A lot of thoughts here: First, thanks Goudah for once again posting an article that was definately food for thought.
My feeling is that the households that are in the PDL trap probably are the ones that have financial challenges anyway and would have them without PDL's, but not being sucked into the PDL trap every two weeks has to make it a little easier for them. And as for Checksmart providing 500 letters praising their service, all I can say is it's easy to pressure someone to do it while they're in the store waiting on the next PDL. If you're scared and know that if you don't write a letter, it's implied you won't get another PDL, wouldn't you do it?
And as to the other website, all I can say is it's great that more people are in the fight to stamp out PDL's and wouldn't we be a force if we worked together? Just putting it out there...


lrhall41

Submitted by kscornell on Tue, 12/25/2007 - 13:40

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