The Continuing Fight - Payday Lenders Roll Out More Disclosures Aimed to Both Forestall Regulation and Strengthen Marketing

WASHINGTON -- The payday lending industry has announced another change that appears positioned to help it both take the initiative and resist the wave of different regulatory and legislative initiatives designed to rein it in.

Beginning on Jan. 1, 2008, members of the Consumer Financial Services Association, the trade association that claims membership from 60% of payday lenders across the country, will start posting their loan fees on large posters in their lobbies, the association has announced.

The posters will be around 22 inches tall and 18 inches wide and will have inch type, according to Darrin Andersen, president of the association. Payday lending fees will also be expressed in dollar amounts and percentage rates for a number of different loan amounts and time periods, he added.

"Our goal is to be up front with consumers about the cost of these financial products and to be able to let them make informed choices," he said.

"CFSA members already follow rules governing full disclosure, including the cost of the payday advance expressed both as a dollar amount and APR," said Andersen, "Now, we are going a step further by mandating poster-size fee displays in every member store and fee disclosures on every member company Web site," Andersen added.

The industry has suffered several significant setbacks in 2007, including losing a bruising legislative battle in the District of Columbia that voted to cap payday lending interest rates at 36%, effectively banning the practice. Because Congress has the final say over D.C. laws, the fight has not ended yet but the first round has definitely gone to industry opponents.

While the details of the proposed legislation were local to Washington, D.C., payday lending overall took a couple of hits from some of the details of the legislative tussle, including the defection of former payday lending employees who testified in favor of the ban and largely echoed many claims of payday lending opponents.

But at the press conference Andersen and Linda DeVault, immediate past president of the association, denied that the poster move was in reaction to the hits the industry has taken, stating instead that the move was a logical follow through to its previous reform package. That effort claimed efforts to prevent rolling over loans and extended time periods to allow payday borrowers to have more time to get out from under their payday obligations.

Like that effort the new program will include a consumer education component covering both print and electronic advertising and a Web site, knowyourfee.org. The new site provides an interactive map which shows visitors the maximum fee payday lenders in each state are allowed to charge for $100 for 14 days in both dollar and percentage rate terms.

But unlike that effort, Andersen and DeVault signaled the industry will not merely seek to defend its products and services from critics but instead is ready to compete with other products that, Andersen suggested, get much more of a free ride from regulators, legislators and activists.

"One thing we do hope is that by being willing to be transparent and accessible about our pricing we can convince the other providers of similar products and services to do the same. We want to lead by example."

Anderson did not spell out which other providers he meant, but DeVault noted that when compared to other providers of similar products and services, such as banks, the payday loan alternative has definite benefits.

DeVault compared a $30 fee to cover an $80 overdraft for seven days, the average time until the next paycheck hits a consumer's account, to a 14-day payday loan. The overdraft protection fee works out to better than 1000% on an annualized basis, where as in many states the fee for $100 payday loan would be somewhere between 300-500%. "We believe consumers will be able to choose which provides the better option" she said.

She and Andersen were also very forward in their opinion that the pressure being put on payday lenders around the country is based less in rational concern and more in uninformed prejudice. The 36% cap on payday lending passed by Washington, D.C.'s government and under discussion in various other states would mean that a payday lender would be expected to make loans for 10 cents per $100, a level which even nonprofit providers of alternative products, such as credit unions, don't have a hope of being able to meet.

"If a nonprofit with a tax-exemption, such as a credit union, cannot provide this sort of loan at 10 cents per $100 dollars how can a profit business be able to do it," she asked.

Leslie Parrish, a senior researcher with the Center for Responsible Lending, a subsidiary of the Self Help Credit Union headquartered in Durham, North Carolina and a long-time opponent of payday lending, downplayed the importance of the CFSA changes. She pointed out that almost all states already require disclosures as part of making a payday loan so its not clear how more disclosures, even earlier in the process, will necessarily help.

She did seem to concede that the industry had a point when it said that its products are often not as bad for consumers as others offered by financial institutions and pointed out that the Center is on record as opposing many of the types of overdraft protection programs that banks offer.

But she also noted that payday lender's central argument that they provide a necessary consumer service has been undercut by a report from the North Carolina Commissioner of Banks which found that most North Carolinians have not missed the payday lenders.

North Carolina deauthorized payday lending in 2001 but the resulting legal fight and slow pace of shut down meant that the last payday loan shop in the state shut down only last year.

The study, titled North Carolina Consumers After Payday Lending was conducted by the University of North Carolina's Center for Community Capital found that most households have a variety of different tools to overcome short-term financial shortfalls. The study also found that nine of out 10 low and middle income households surveyed considered payday lending a bad thing, even if they had experienced financial shortfalls.

"Hard-working North Carolinians have not missed payday lenders," said Mark Pierce, deputy commissioner of banks. "This study shows that people have many options to get through financial distress."

--dmorrison@cutimes.com