WASHINGTON — Payday lenders have started fighting back against a report that, they charge, falsely puts their industry in a bad light.
The Community Financial Services Association, a national trade association representing many U.S. payday lenders, has criticized a recent report from the Center for Responsible Lending on payday loans. The Center for Responsible Lending is an affiliate of the $261 million Self-Help Federal Credit Union headquartered in Durham, N.C.
The Center has released a report entitled "Financial Quicksand" that attacks the payday lending industry on a number of fronts. CFSA responded by accusing the Center of lying to the public.
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"CRL has taken data points from various sources, applied their own convoluted math and passed it off as information confirmed by state regulators and third parties," said Darrin Andersen, CFSA president. "In reality, CRL has applied its own assumptions, calculations and adjustments to the original data points. They also take the liberty of estimating data that simply does not exist," Andersen said.
"By publishing false information in their reports, CRL is misleading consumers, legislators and the media who believe and repeat their false allegations. Any report released by CRL should be reviewed carefully in order to separate fact from the fiction they use to make up their allegations," said Andersen.
CFSA took particular offense at the report's allegation that most payday loan customers use payday loans repeatedly in a phenomenon called "flipping."
In CRL's calculation, the average borrower takes out nine loans per year, the average loan amount is $325 and typical fee per $100 borrowed is $16. For a loan of $325, the fee would be $52.
However, CRL makes the assumption that eight of these loans are rollovers or extensions of the original loan, CFSA said.
"This figure is absolutely wrong, Andersen said. "To come up with that number, CRL counts the principal for only one loan but adds the fees for nine loans," said Andersen. "While it makes for a good headline, CRL's scenario is impossible."
In 37 states, rollovers are limited or prohibited. In states without limits, CFSA members limit the number of rollovers to four. Therefore, it is not possible for someone to roll a loan over in the manner CRL contends or to accrue the kinds of fees they claim.
For its part, the Center's report noted that its study was not the only research that found that loan flipping is a problem, citing similar findings from other financial analysts and analytical firms. It also notes that people will often flip loans with more than one lender which undercuts regulatory efforts to prevent people from extending their loans more than a few times.
CFSA also attacked one of the report's most widely circulated charges, that Americans paid more than $4.2 billion in fees and interest on payday loans.
CFSA countered that charge by declaring that the Center has "arbitrarily" decided that taking out more than four payday advances in a year is inappropriate and that any consumer who does is caught in a "predatory debt trap."
"This runs contrary to research showing that 92% of customers think payday lenders offer a valuable service and that 90% of customers are satisfied with their understanding of the terms and costs of payday loans," CFSA said. –[email protected]
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