The April 3 piece by Laura Alix, “CFPB To Clamp Down on Payday Lenders,” discussed the Consumer Financial Protection Bureau’s recent proposal on payday lending. Unfortunately for readers of Banker & Tradesman, several important points were missed. It also misses the forest for the trees. Though Massachusetts has correctly discouraged access to high-cost payday and car title loans – which do nothing but trap low-income borrowers in unmanageable debt – our residents are still at risk.
The Midas Collaborative is a statewide network of community groups increasing economic stability in Massachusetts through financial education, savings incentives, asset-building and consumer financial protection. Our members across the state report that residents are accessing payday loans via the Internet and in stores just beyond state borders, so national regulation is in order.
The studies on which the author relied are deeply flawed. The first study, a 2007 report which claimed that putting an end to legalized loan-sharking caused increased bounced check fees and bankruptcies in North Carolina and Georgia, stands in stark contrast to years of research, including a study by the University of North Carolina at Chapel Hill that drew on direct interviews with former payday loan borrowers. It also fundamentally misclassifies which states have payday loans and which states do not have payday loans, thus undermining the validity of the conclusions reached.
For the second study, the connection between the researcher and the payday lending industry is even more clear – Navigant Consulting, which is listed as one of the study’s authors, counts the payday lending lobby as a client. Citing their research in support of payday lending is like citing a study by Shell Oil Company claiming that carbon emissions reduce global warming.
Furthermore, the article omits the reams of research from independent academics and the CFPB itself on the harms of the payday lending debt trap. For example, a study by professors at Harvard University showed that payday loans are associated with increased likelihood of involuntary bank account closures. Payday loans increase the chances that people are bounced out of the banking system.
Across the country, payday lenders market their loans to the most vulnerable Americans as the answer to financial crises. At an average of 400 percent interest, what payday loans actually do is turn a temporary crisis into a long-term problem. Suggesting that payday loans are good for those in financial distress is like saying that spoiled meat is a good solution for a hungry child.
Massachusetts is correct to protect against these high-cost lending abuses, and the CFPB is aiming in the right direction and should ensure that its efforts do not have loopholes that predatory lenders can exploit.
Margaret Miley is executive director of
The Midas Collaborative.
