Jackson Free Press

In a column published June 3 ("Payday Lending: Bad Business" by Scott Colom), JFP readers met a man named Mike (an alias for a supposed payday loan customer.) I'd like for you to meet a real payday loan customer: Gracie.

Gracie is a stay-at-home mother with three children living in south Mississippi. Her husband works offshore to support his family. A few years ago, Gracie's car broke down, and she had no room in the budget for a repair. Her husband knew he had some overtime coming that would cover the cost of the repair, so they took out a small loan.

They paid the 18 percent fee allowed by Mississippi law for the two-week loan, got the car fixed and paid off the loan on time. Then an unexpected bill came along. Gracie started doing the math. She could write a check and risk an overdraft on one, maybe even two checks—"That's $72, right off the top," she says in a video testimonial at http://www.BorrowSmartMS.com —or she could take out a payday loan. Turns out, the payday loan was cheaper.

The concept flies in the face of the June 3 column. Here's the truth: The large majority of payday loan customers take out the loans because they are the smart solution to temporary, urgent financial needs.

The column called for state regulators to cap payday-loan interest rates at 36 percent annually. Gracie could probably tell the author that 36 percent APR on a $300 loan extended for two weeks is $2.07. Let's assume that a busy store does 1,000 loans per month at an average of $300 each. That's less than $25,000 in annual revenue.

While we are on the subject of math, according to regulators, there are approximately 25 percent more stores per person in Mississippi than Alabama—hardly the twice as many the author quoted.

In addition, he says the average customer borrows $300, eight or more times a year. He implies it costs $528 to borrow $300, when in fact, the customer in his example borrowed $2,400 (or $300 eight times).

Make no mistake, responsible people in the short-term lending industry support sensible regulations that protect consumers. For instance, payday-loan companies are prohibited from charging additional interest beyond the term of the loan. So if a loan is not paid off in the typical two weeks, customers are not charged more interest. Try getting your credit card company to agree to that.

Furthermore, a group of more than 350 lenders in the state gathered two years ago to form a consumer organization called Borrow Smart Mississippi, which takes consumer protections even further. The program requires members to offer repayment plans to educate customers about financial health and encourage them to only borrow what they can afford.

The fact is there is an unmet demand for short-term, unsecured loans.

After short-term lending was banned in Georgia and North Carolina, a Federal Reserve study determined: "The increase in bounced checks represents a potentially huge transfer from depositors to banks and credit unions. Banning payday loans did not save households $154 million per year, as the some projected, it cost them millions per year in returned check fees."

So to those of you who want to take away consumers' options, I say: Do the math. Your argument comes up short.

Dan Robinson is the owner of Cash Incorporated of Mississippi, based in Flowood.

Previous Comments

ID

158232

Comment

Much like the balance of his industry, Mr. Robinson is not much for full disclosure. I'm sure that, had the JFP not required it of him, even the bare mention of his vested financial interest in perpetuating his industry's state-enforced monopoly on legalized loan sharking would have been absent. Gracie's story needed to come with the disclaimer we're all familiar with from weight loss advertisements: "Results not typical." She represents the fewer than two percent - that's one of ever fifty - of payday borrowers who take out just one loan per year. Better than 90 percent of people who take out a payday loan have paid off another one in the prior month. (Center for Responsible Lending) Of course, Mr. Robinson felt no need to share this information. He suggests that the "truth," however he defines that term to make it most flattering to his only-recently decriminalized business, is that, "The large majority of payday loan customers take out the loans because they are the smart solution to temporary, urgent financial needs." That much is true. People seek out payday lenders when facing hard times. And that choice to take out a payday loan, for most, becomes a guarantee of future hard times. The payday lenders' system is set up to ensure that outcome, to provide the lenders a steady stream of income from people who cannot meet the deliberately-lofty demands of the lenders. If people are, as Mr. Robinson suggests and the numbers bear out, generally in financial trouble when they seek a loan, what exactly makes him think those people (or at least more of them than the two percent he tries to cast as the "truth") will, in two weeks time, be in such an improved financial situation that they can repay the entire loan and the exorbitant fee? Of course, he knows the actual truth, which is that the vast majority will not be able to do so, and will have to take out another loan, from the same borrower or one of the 5 that are likely within spitting distance, to cover the first. Mr. Robinson refers to the "recommendations" or "best practices" his industry group cobbled together to try to lend some air of decency to loan sharking sans the kneecapping. These are nothing more than PR gone amateur hour. There is absolutely no attempt on the part of the industry to enforce these "best practices" on its members, so, naturally, most do not. They simply do what they've done all along: trap people in debt so that stream of interest payments is never disturbed. That industry group has even resisted the basic idea of a borrower database that would allow the public to know where these loans are really going. Why? What do you have to hide? Mr. Robinson suggests that barring lenders from collecting more than 36% APR from their loans would be ruinous. Since when is inability to turn a profit justification for instituting a mandated-monopoly for previously-criminal behavior? I'm sure the average pickpocket struggles to make ends meet, too. That doesn't mean the legislature should legalize that vocation and go along with him to make sure his efforts aren't inefficiently impeded, but that is precisely the result of the payday lending industry's multi-million dollar lobbying and campaign contribution efforts. If your business model is so flawed that it can only survive on 572% APR loans, then perhaps you should try to find a legitimate line of work (save your goosestepping "short term so no APR" response, Mr. Robinson, since you and I both know payday debt is, in more than 90% of cases, not short term). While Mr. Robinson is quoting "regulators" (a foolish notion for an almost un-regulated industry that, again, rails against even data collection) to suggest Mr. Colom's statistics were incorrect, it would be nice if he would at least identify those regulators. Again, that full disclosure idea. The FDIC 2005 working paper "Payday Lending: Do the Costs Justify the Price" shows there were 3100 Mississippi residents per payday outlet compared with 5200 Alabama residents. True, that's not double (rounded up to the nearest integer it is, but hey, that's math, not the new, self-serving math Mr. Robinson uses to arrive at 25%), but how can it be a defense to suggest that your egregious behavior isn't more rampant in MS than in AL to quite the extent as your opponent suggests? In fact, it sounds like a concession, a concession that, because of its higher poverty rates, Mississippi offers more economic carcasses for the vultures to feed on. (that paper concluded, unsurprisingly, that "inducing a store's existing customers to borrow again would be the most effective way of increasing loan volume) Payday lenders are attracted to poverty, because it ensures a customer base that can never pay back the full loan and 572% APR within two weeks. That's why, according to the Mississippi Economic Policy Center, at least two thirds of payday lenders are in areas of high poverty. Mr. Robinson cites a study that suggests more returned check fees in North Carolina and Georgia after payday left those states with its tail between its legs. Well, he doesn't "cite" it in any meaningful sense, since he doesn't point out that it was not, in fact, a Federal Reserve Study, but merely the working paper of two staffers at the Federal Reserve in New York. He also doesn't point out that the flawed methodology of that study is readily apparent to anyone who reads beyond its conclusion. When counting returned checks, it used statistics from returned check centers that cover both of those states AND several others where payday is still legal, with no effort to disaggregate the data, meaning those authors have no way of knowing which of those returned checks actually came from GA or NC. But Mr. Robinson didn't tell you that, probably because it doesn't advance his cause of protecting his industry's corner on the 572% APR market. (he also didn't tell you that payday lenders routinely present checks for payment, at least twice, when they know those checks won't be covered, generating their own returned check fees, running up customers' tabs at the bank, and leading to involuntary account closures) If you want actual, academic-quality research on what happened in North Carolina after that legislature shooed away the predators, look no further than the University of North Carolina, a highly-respected public research university. In 2007, the study "North Carolina Consumers After Payday Lending: Attitudes and Experiences with Credit Options," "more than twice as many former payday borrowers reported that the absence of payday lending has had a positive rather than a negative effect on their household." Yes, Mr. Robinson, the people that North Carolina's legalized loan sharks claimed to be serving, two-to-one, are glad their financial waters are now less predator-infested. Why? "Nearly nine out of ten households surveyed think that payday lending is a bad thing," and "[h]ouseholds reported using an array of options to manage financial shortfalls, and few are impacted by the loss of a single option." As much as you protest otherwise, your industry is NOT necessary. Certainly, some source of ready cash for financial emergencies is, but, when the state of North Carolina freed itself of its own legal monopoly of 400%+ APRs, it found its credit unions and banks stepped in, now that the playing field wasn't tilted at about a 160-degree angle toward their competitors. (geometry, since Mr. Robinson is so fond of "math," so long as it's fond of him) Speaking of academic-quality research, Paige Skiba of Vanderbilt University and Jeremy Tobacman of the University of Pennsylvania found that bankruptcy rates were double among payday borrowers than among people who were in similar circumstances but were denied payday loans. (2009) That's right, Mr. Robinson, the people whose finances were so bad that even your industry wouldn't touch them were HALF as likely to file for bankruptcy as the people who took out payday loans. The difference is the former group were fortunate enough to avoid the "opportunity" to rent their own income from businesses like yours. Lastly, Mr. Robinson didn't tell you about the people he rubs elbows with. He didn't tell you that Allan Jones, founder of the nation's third-largest payday chain, Check Into Cash, likes living in Cleveland, TN, because it has "just enough blacks to put together a decent basketball team - but not so many [he has] to worry about crime." (Gary Rivlin, "Allan Jones, Payday King") With attitudes like that at the backbone of his industry, it's little wonder Mr. Robinson and his allies flock to minority neighborhoods. In California, the average predominantly-minority neighborhood has thirteen payday lenders within three miles of the neighborhood's center. The average predominantly-white neighborhood has just three. Maybe it's just economics - as mentioned above, Mr. Robinson and his comrades make a point of lending to people who can't afford to pay them back on time, and ethnicity and poverty have a pretty strong correlation - but maybe not. No matter how he tries to slice it, Mr. Robinson represents an industry that, for good reason, was illegal in Mississippi until the late 1990s. It drains millions in fees while only giving people what they already have, their own money (minus the fees). It deliberately traps its borrowers in a cycle of debt that takes months and multiples of the original loan to repay (by the way, Mr. Robinson, yes, the customer in the $300 example technically borrowed $2400, but you know, and, again, failed to disclose, that $2100 of that amount was spent repaying the previous loan's principal, leaving the net amount borrowed at $300). The payday industry cannot, as its architects have admitted, survive without "repeat customers." In some industries, actually providing a meaningful service at a reasonable price with the goal of building positive rapport with the customer is the preferred method for producing repeats. In the payday industry, the legalized loan sharking industry, the preferred method for generating repeat borrowers is to make sure that only 2 percent of borrowers can possibly be anything else.

Author

MikeGentine

Date

2010-06-17T11:20:17-06:00

ID

158236

Comment

It would appear that here are the two current trends of debate in America. Mr. Robinson appears to be a open market/ free enterprise business owner. Mr. Colom’s is a market/command economy philosopher. The question the American people have to ask themselves is who do they trust, government or individual business owners and those that choose to do business with them? If you’re of the mind set Government knows best then you would agree with Mr. Colom’s philosophy and want even more government control and say. It’s not really control on the business, it’s control on you, the consumer, and in the end you’ll have less choices to choose from. Now Mr. Colom isn’t going to come out and say it in those terms but when calling for regulations that would basically put Mr. Robinson and others out of business, who’s in control? Who’s controlling business? Who’s controlling money? The Real Question is this. Who should have the choice to choose between Mr. Robinson’s business or a federally regulated bank/business? What affect would that have on you/our choice? Wouldn’t that be taken away your right to choose and choices to choose from? Mr. Colom fails to say or point out is this: Why are these people getting these loans? I know it’s because they need the money, but if there were easier/cheaper ways out there don’t we think they would use that? Is it the role of Government to make things cheaper for everyone? (If you answered yes to the last question then research Communism, Totalitarianism, Cold War, and the economic principles this country was founded on and why they work.) If Mr. Robinson’s business is the best option for some people in our open market isn’t that their right to CHOOSE whether, or not, to use that business. If this business is put out of business what happened to that choice? In the end it’s this simple thing, “Our right to choose where we do our business and who gets our money we spend”! I personally trust the open market where we, the American/consumer set the prices. If consumers wouldn’t pay the higher interest rates, Mr. Robinson couldn’t charge them. In the open market, we the buyers set the price. It’s as simple as Supply and Demand. Tony

Author

Tonyole

Date

2010-06-17T14:36:49-06:00

ID

158247

Comment

Scott, so the debate continues, my friend! Although, I am not so sure I am a worthy opponent for an attorney who has affiliations with a law firm out of New York City! I will, however, try to go back to basics for myself and the readers. Our industry came about in Mississippi because of a need by the consumers, not because of something I, or any other business person created. In Mississippi the banks typically charge in the neighborhood of $32 dollars per NSF check. And the merchants are allowed to charge $40 dollars per NSF check. This means if a consumer writes one NSF check, it can cost them $72 dollars! As a standard part of our verification process, we require our customers to bring in a current bank statement. Unfortunately, I all too often see customers with 3, or more, NSF checks on their statements. This means that they have paid $96 dollars to the bank the previous month! And, the bank gets their money every time the customer makes another deposit. They simply sweep the account, often leaving the customer short, which in turn causes additional NSF checks. The merchants charged another $120 dollars on the NSF checks, so the grand total for 3 NSF checks is $216 dollars. Not to mention the embarrassment for the customers having to go back to the merchants to make the checks good! Now, lets compare that to the “exorbitant interest rates” you claim our industry charges. Actually, you are incorrect in your statement. We charge no interest whatsoever. State law allows us to charge 18% of the face amount of the check that we cash as a fee. That means if a customer writes us a check for $100 dollars, they will receive $82 dollars in cash. And, sometime between 14 and 30 days, whenever the consumer agrees, we will deposit the check, or they will stop back by our office and pick it up - often avoiding NSF fees at the bank. Very simple process for the consumer: $100 dollar check - $18 dollar fee - $82 dollars cash to them. Mississippi state law prohibits our industry from charging any interest, late fees, or collection fees. In fact, it prohibits any additional fees at all! State law also requires the fee to be conspicuously posted in the lobby of each office, so the consumers know EXACTLY what they are paying! There are no Documentation Fees, no Origination Fees, no Insurance Fees, no small print of any kind! The transactions we offer are the most transparent of any of the financial services industry. According to the Mississippi Dept. of Banking and Consumer Finance, our industry only averages about 15 formal complaints each year! That is out of the tens of thousands of transactions that approximately 980 offices in this state conduct. In fact, our industry has LESS complaints than any other financial service industry, and we conduct many more transactions! If there were problems with the industry, there would be many more consumer complaints. In 1998, our state legislature passed into law regulations concerning our industry. I am proud to say that as President of the Financial Service Centers of Mississippi, I led the fight for regulations in this state. Before regulations, there was absolutely no oversight in this state. Now, we have one of the strongest consumer protection laws in the United States! Rollovers are illegal. Criminal prosecution, or threat thereof is illegal. And, as I mentioned, late fees, collection fees, or any additional charges are strictly prohibited. Furthermore, one must qualify for a license. An initial fee of $750 dollars is required, with an annual renewal to the state of $475 dollars. One must not have been convicted of a felony offense in the last 10 years. A $10,000 bond is required for each location. One must be fingerprinted with copies going to both the Mississippi Dept. of Public Safety and the F.B.I. In addition, offices are examined at a minimum of every two years by the Mississippi Dept. of Banking and Consumer Finance, and can be examined at any time, without prior notice, by the Dept. for a consumer complaint. Any Licensee found in violation the law is subject to a fine of up to $1,000 dollars PER VIOLATION! The so-called “special statue” that you refer to is not special at all. It is no more special than any other law on the books in Mississippi. No more so than the statue that the banks operate under, or the one that consumer finance companies operate under. Or, Title Pledge, or Pawn Shops… It all goes back to this, Scott - the reason consumers chose to use the services we provide is because we are a less expensive alternative for them. That’s right, we save them money! One can receive $82 dollars cash and pay only $18 dollars, or one can write one NSF check and pay $72 dollars! Or, one can use that cash to avoid a $50 late fee on a credit card, or re-connection charge on their utilities. I know I’m not an attorney, as you are, but I just don’t know how much more simple that can be explained… And, as far as your proclamation of consumers using our services 8 times a year, or more - yes, in some instances they do, because EVERY time a customer is faced with a decision to make, we are still a LESS EXPENSIVE alternative than an NSF check, a credit card late fee, or a re-connection charge on utilities! Scott, you said you will continue the fight to help Mississippi consumers with their access to small loans. If you are really serious about this, and I know you are, I have a suggestion. Mississippi’s Law allows for a maximum of 18%, but no minimum! I invite you to be my competition. Friendly, of course! You can open right next door to me. I’m sure a young man of your qualifications would have no problem in securing a license. Then, you can offer these services at the rates you say they should be. And, you could help consumers by doing it cheaper! You could offer them a 12%, or 5% fee. Or, better yet the 36% APR you are so fond of speaking of. That would be a little over 1%. But, I will warn you, if 1 person does not pay you, you have to have 5 new ones to make up for that 1, and that is at 18%... Keep this in mind, I personally know of offices that have had to close at 18% in the last couple of years because their expenses were simply greater than their income. So, carefully craft your business plan, before investing your time, effort and money, my friend! That is the true free market you speak of. I wish you well in meeting the financial needs of Mississippians. Dan Robinson Cash Inc. of Mississippi President, Financial Service Centers of Mississippi

Author

Dan Robinson

Date

2010-06-18T12:49:33-06:00

ID

158279

Comment

Scott Colom, this will be my last post on the subject. I don't normally respond to a response but couldn't just leave this as is. I’ve learned that when someone is paid to have a stance on a subject they don’t really want nor care to hear anything from the other side. After doing some research, actually in the paper it was printed in, it told me A LOT more about WHO YOU REALLY ARE. Here are the links that will tell the readers more: http://www.mscenterforjustice.org/staff.php And http://www.law.wisc.edu/newsletter/In_the_Media/UW_Law_Student_Scott_Colom_3L_Re_2008-12-29 And http://skaddenfellowships.org/ Scott, you are PAID to make this stance. Not only are you paid but you receive other benefits from the Skadden Fellowships Foundation. Your paid by a company out of New York to come to Mississippi and shut down locally owned and operated business. Shame on you man, wolf in sheep’s clothing. I will respond to one of your quotes: “I actually have strong faith in the free market.” If this is the case then why are you trying to limit it? I suggest if you can loan money cheaper than these evil payday loan places then take advantage of this golden opportunity and make a fortune really quick here in Mississippi. Isn’t that what open/free market is about and how it works?

Author

Tonyole

Date

2010-06-21T20:01:36-06:00

ID

158288

Comment

Dan You are a silver tongued little devil of a loan shark aren't you? I'm sure you have some understanding of accounting so I am sure you know that your silver tongued and self serving explanations of the economic principles, benefits and societal advantages of your industry are an abomination. I know you're not a Christian for the same reason. Before the regulations of 1998 you are so in love with, your business model was not only unregulated, it was illegal! You and Bernie Myers and Bernie Ebbers and Ivan Boskey and Mr Sanford of Alabama, along with that Enron, Exxon and BP bunch are all of the same ilk as regards to you a "Me First" rationalization of your evil ways. I say evil because the definition fits. Have your kids look it up and read the definition to you. May God continue to bless you and yours

Author

FrankMickens

Date

2010-06-23T03:59:26-06:00

ID

158290

Comment

Frank: Please refrain from personal attacks on people in your posts, including about their religion. Thanks!

Author

Todd Stauffer

Date

2010-06-23T09:11:00-06:00

ID

158301

Comment

Ugh, Clinton has become littered with those payday loan vendors. I can't speak for the morality of their practices, but they are certainly quite the eyesore. "Get your checks cashed here!!" Why don't people just go to a bank? They cash your checks for free! They set up in the buildings formerly occupied by businesses that have failed, and they make little effort to renovate the building or the pavement. The more failed businesses forced to leave a neighborhood, the more psyday loan places there are. I am sure there is a direct correlation. They have little dollar signs all over them,the financial equivalent of strip clubs advertising "Girls, girls, girls!" And just like a strip club, you feel a profound sense of guilt after walking out the door.

Author

DrumminD21311

Date

2010-06-23T15:04:25-06:00