Bias blankets criticisms of payday lending

In his op-ed “Stop the debt trap” (Jan. 4), Gary Kalman of the Center for Responsible Lending (CRL) speaks in high-minded tones when he condemns payday lending. But his organization’s decades-long vendetta against the industry, subsidized by taxpayers and taking place within federal regulatory agencies themselves, is aimed at driving more business to CRL’s affiliated credit union, Self-Help.

Kalman’s claim that his organization is “fighting to rein in the abuses” of payday loans is disingenuous and misleading. The same can be said about how CRL has historically mischaracterized the traits of a payday loan and consumers’ use of the product.

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The fact is Self-Help offers financial products that would benefit from the exclusion of payday loans from the marketplace. The Self-Help network of businesses and advocacy groups—which has cumulatively received more than $380 million in federal grants, loans, and other taxpayer assistance—has spent millions lobbying the federal government on measures including additional regulations on payday lenders.

CRL, the purported “consumer advocacy” arm of Self-Help, has used its funding over the last decade to wage a public relations war against payday lending, disparaging the industry and product in an attempt to – quite simply – shut down the competition.

Whether or not Self-Help’s products specifically are more expensive than the average terms of payday loans, they do provide alternatives to those loans, and hence compete with them for consumers looking for short-term financing. Regulatory and legislative efforts to restrict payday lending have benefitted financial institutions that offer the same types of products as Self-Help, studies show.

A law in Oregon that capped short-term interest rates “reduced access to payday loans in Oregon, and … former payday borrowers responded by shifting into incomplete and plausibly inferior substitutes,” one study found. “Most substitution seems to occur through checking account overdrafts of various types and/or late bills,” with fees greater than that of payday loans. States that have banned payday lending outright, such as CRL’s home state of North Carolina, have seen similar results.

CRL’s bias has infiltrated regulatory agencies at the federal level as well. The Consumer Financial Protection Bureau (CFPB), which is expected to issue its proposed regulations for payday loans early this year, has been “cozy” with staff at CRL and Self-Help throughout its rulemaking process. POLITICO reported recently that newly-obtained government emails and documents reveal CRL pressured the CFPB at very high levels to crack down on payday lenders, while at the same time its affiliated financial services business – Self-Help – sought the CFPB’s support for its own loan product. This clear conflict of interest is detailed in more than 1,100 pages of emails and documents obtained by my organization under a recent Freedom of Information Act (FOIA) request. The emails also document CRL’s strategy of infiltrating the highest levels of regulatory agencies to advance its agenda.

In the ongoing debate around payday loans and short-term credit products, we should be cognizant of the apparent bias of those such as Kalman and his colleagues at CRL and Self-Help, and of what they stand to gain by the elimination of payday loans. 

Shaul is CEO of the Community Financial Services Association of America (CFSA).

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