Lawrence Meyers, a shill for the payday lending industry, has a sad.
[Loren] Steffy claims in his blog post (“Will lawmakers finally rein in paydayl lenders,” chron.com) that PDLs are “inherently predatory,” yet a loan cannot be predatory if choices exist, and a person enters into a transaction via free will, with terms and pricing disclosed. Steffy’s inference that borrowers do not “understand the consequences of the terms to which they’re agreeing” indicates he has never taken out such a loan nor visited a store that offers such loans. It is too common for people like him to make unfair pronouncements without the experience to draw upon.
Here’s Steffy’s blog post. If you think it’s unfair because Steffy hasn’t taken out a payday loan himself, then go read Forrest Wilder’s account of taking out a payday loan. Be sure to read carefully the bits in which Wilder describes the obfuscatory language used to describe the loan’s terms, despite the laws that Meyers touts that are supposed to provide borrowers with accurate information. What do you have to say about that experience?
Regarding allegations of very high average percentage rates, borrowers don’t care about APR because loans are not taken out for a year. Customers care about the loan’s flat fee, just like any other product. When you get dinged for a $2 automatic teller machine fee for a $200 withdrawal, do you scream about the APR? No, you scream about the two bucks.
Meyers is counting on people’s innumeracy here in waving off concerns about APR. We use APR to provide a consistent basis for comparison, since payday loans by their nature are short term, as noted. You can say that the rate for a loan that’s due in a week and for which you owe $20 on top of $100 in principal is twenty percent, but the APR for a loan if 20% interest accrued weekly would be 1040%. It’s not a trivial difference, and it’s not at all a mystery why people like Meyers would like to gloss it over.
Consumers have choices, and in the first half of this year, the Office of Consumer Credit Commissioner reported that 800,000 consumers freely chose PDLs over the following loans (the cost for $100 for 2 weeks):
Borrow from a friend or an employer ($0)
Credit card advance ($1)
Installment loan ($3 to $8)
Title loan ($10 to $12)
PDL ($15 to $23)
Online PDL ($25 to $30)
Bank overdraft fees ($40)
Loan shark (no maximum)
While I question how freely some of these choices were made, I do agree with Meyers on one point: Bank fees are too high, and have been for a long time. I have great hope that the Consumer Financial Protection Bureau will take steps to deal with that. Of course, the CFPB is also taking a look at payday lenders, so perhaps that isn’t what Meyers was looking for here.
Simply put, it costs a lot more to get a payday loan in Texas than it does in other states, where there is regulation of the industry. Given that it’s highly unlikely that Texas payday lenders have significantly higher costs of doing business than their counterparts elsewhere, the obvious conclusion is that they’re charging too much. If all goes well, the Lege will deal with that next spring.