In his op-ed, “The payday loan problem” (Dec. 1), Dr. Norman Eschler grossly mischaracterizes the payday lending industry and the customers it serves. For example, Dr. Eschler’s assertion that a payday lender falsely advertised the interest rates for a short-term loan is simply not possible if the customer borrowed from a legitimate lender.
Members of my organization, the Community Financial Services Association of America, are regulated and licensed lenders that operate in accordance with all federal and state laws and uphold a strict set of best business practices offering important protections for consumers. These best practices include a “full disclosure” requirement that ensures our members fully outline the terms of the loan. Further, CFSA members disclose the cost of the loan as both a simple dollar amount and as an annual percentage rate on large poster-sized displays inside all storefronts.
There is also a general assertion made in Dr. Eschler’s piece that payday loans inherently harm consumers, and this argument could not be further from the truth. In fact, ample research demonstrates that payday loans help millions of households responsibly manage budgetary shortfalls and unexpected expenses. Studies from researchers at Columbia University and Kennesaw State University indicate that the use of payday loans improves the financial well-being of consumers, as demonstrated by improved credit scores. In fact, one study found that borrower credit scores increased with longer-term usage of the product. This is clear and factual evidence that payday loans enhance borrower welfare.
The truth is consumers use payday loans to get through a financial pinch, typically for a relatively short period of time. The vast majority who use payday loans understand the product and responsibly use it to make informed choices about what is best for their finances. According to a national survey of payday loan borrowers, 96 percent of borrowers report their experience with the term and cost of their loan was as expected or better than expected. Similarly, nine in 10 said that before taking out a payday loan, they carefully weighed the risks and benefits of doing so and did the math on the overall cost they would incur.
While there is significant opportunity for the financial services industry to better serve all consumers’ credit needs, and it is important to discuss the needs for reforms that will properly protect consumers from unscrupulous lenders, we must preserve existing financial products that seem to work well for the vast majority of consumers.
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