April 20, 2013

Don’t believe lobbyist misinformation, payday lenders need tighter regulation

Today’s Viewpoints page has a piece by Lawrence Meyers, president of PDL Capital, offering an unsurprising industry insider’s defense of the payday loan industry. This piece is so full of misleading and outright wrong information, I don’t know where to begin. But I guess I should start with the credit line that explains who Lawrence Meyers is.

The credit line on his column lists PDL Capital as a company that “brokers secure high-yield investments to the general public and private equity.” Gosh, you would think it’s some kind of high-fallutin’ Wall Street investment firm or something. It is a company that provides start-up money so payday lenders can expand operations. It essentially provides high-interest payday loans to storefront payday lenders, title-loan companies and online payday lenders.

PDL stands for PayDay Loan, as the company’s website makes very clear. So why would Meyers write this gobbledygook to describe what he does, instead of just saying outright: a company devoted to financing the expansion of payday loan operations around the country? Because from the very start, his job is to sugarcoat the true nature of his industry and paint it in the best-possible light. In order to accomplish his mission, he uses deception and seeks to minimize the very real, harmful effects of the business he promotes.

It’s harmful because payday loans are structured in ways that virtually ensure the borrower cannot repay the expensive, high-interest loan within the first period established in the loan agreement. Failure to meet the repayment schedule leads to the addition of fees and interest that reaches into triple-digit ranges. This is the profit center of the payday lending industry. When unwitting, uneducated borrowers get trapped in this cycle, many see their only option as refinancing through the very payday lender that is charging ursurious rates from the outset.

Meyers scoffs at this. He says: “Data from the Office of Consumer Credit Commissioner shows it [refinancing] occurs only 20 percent of the time.”

Repeat: “Only.” But connect the dots. Two paragraphs later, Meyers states that his industry made 100 million loan transactions in 2012. By his own calculation, then, “only” 20 million payday loan customers were compelled to refinance their loans. Meyers seems tothink that if he puts the word “only” in front of a figure, he can make you think he’s talking about miniscule, insignificant numbers that are being blown out of proportion by the anti-payday loan haters out there. Twenty million borrowers is hardly insignificant — nor is the money they contribute the the payday loan industry’s profits.

Meyers then proceeds to minimize the effects of the debt abyss his industry creates for people who are desperate for quick cash. “Borrowers use payday loans an average of eight times annually. Are we to believe that consumers who experience a debt cycle simply forget that experience and get payday loans multiple times a year? I think not.”

Well, of course they use these services multiple times a year, because we already know from Meyers’ own figures that 20 million borrowers have to return repeatedly to their lenders to refinance their loans. How many of these eight-timers are customers returning to refinance? Meyers doesn’t say.

We must trust his figures about these eight-timers because I have no earthly idea where he gets this figure. I suspect it comes from his very own industry, using manipulated numbers that, again, are designed to paint this industry in the most favorable light possible: Satisfied customers coming back because, dang, they just can’t get enough of a good thing.

Should we trust his numbers? To use Meyers’ language, “I think not.” Here’s why: Meyers cites the online site as showing “only” (that word again) 1,020 complaints against payday lenders since 2004″!” Just one problem: I did a cursory search on “cash services” and came up immediately with 6,720 complaints.

There are even more payday-loan complaints listed among the 20,900 entries under the category “banks.” More are scattered throughout the 19,300 complaints listed in “financial services.”Let’s not forget the payday loans disguised as “advances” on income tax refunds. There are additional loan complaints scattered among the 1,080 for these services. And if you look at the “loans” category, another 22,000 complaints show up, heavily weighted toward payday lenders and title-loan companies.

It appears, at a minimum, that Meyers is off by tens of thousands on his “only” claim of 1,020 complaints. I tried to duplicate his search results, and I can’t. Even if you just do a search on companies that include the word “payday” in their names, you come up with at least 2,020 complaints.

But Meyers bases pretty much the rest of his argument on this singular, false number, saying that “the debt cycle claim isn’t supported by data or logic.” Well, heck, if you get to make up your own numbers, then make up your argument based on those false numbers, of course the other side’s debt cycle claims don’t match up.

Meyers cites a George Washington University study as demonstrating an 88 percent satisfaction rate with payday loans. I challenge any member of the public to access this survey. I tried. I couldn’t. I suspect he got the study from several listed by the Consumer Credit Research Foundation, which SourceWatch describes as outdated and containing “several research works that are upbeat about the merits of payday lending and dismissive of criticisms of it. The first report the group produced, in December 2004, was what it claims is ‘a comprehensive explanatory primer that examines the rapid expansion of payday lending across virtually all of America.’ The media release accompanying the report emphasized that users of payday lending included ‘educated, middle-income Americans’ as, it claimed, such loans were ‘a better alternative to bounced check fees, utility shut-offs or other costs.’

But let’s go back to Meyers’ “logic” and “data” argument. If payday lending is such a great deal with such a stellar reputation for helping out people in need, why would the U.S. Department of Defense maintain a longstanding ban — ban — on the use of payday lenders by active-duty service members? Why are payday lenders banned by law from making loans to military service members?

Meyers conveniently leaves that entire point out of his description of the merits of his industry and his portrayal of the bad rap and “false narrative” payday lenders receive in the news media. The Pentagon isn’t the news media. The Pentagon is the U.S. government, and the Pentagon says very clearly to its personnel: Do not use these services.