WASHINGTON - A trade group representing the payday lending industry criticized a proposal for “model payday loan alternatives,” saying if adopted the plan would eliminate not just payday lenders but many of the programs offered by credit unions, as well.
In response to a report titled “Confronting the Debt Culture” that was released during the conference of the same name, the Community Financial Services Association of America said it’s “further evidence that the advocacy groups authoring this study don’t understand the basics of short-term consumer lending.”
“While the intentions are good, the recommendations in the report demonstrate the complexity of small-dollar, short-term credit offerings and their costs,” said D. Lynn DeVault, CFSA president, in a released statement. “So-called ‘solutions,’ such as annual rate caps would eliminate not only payday lenders, but also the model credit union alternatives described in the report as well.”
“Those who don’t understand a free-market think you can wave a magic wand and new services and products are created,” continued DeVault. “The truth is, payday lenders already compete with banks, credit unions and other financial services. The market is driving the price down to its lowest cost. Knee-jerk reactions, such as imposing annual interest rate caps, eliminate services, reduce competition and restrict consumer choice.”
DeVault said there are “contradictions” in the report’s call for building new thrift institutions and imposing a 36% APR cap on all loans. The report cites as a “successful” alternative the GoodMoney payday loan alternative, made available through a partnership with Prospera Credit Union and Goodwill Industries. But the CFSA said the GoodMoney payday loan comes with a fee of $9.90 per $100 borrowed for the two-week period, equating to a 252% APR.
“Even the ‘model’ payday loan alternative could not be offered under the annual interest rate cap they are advocating,” said DeVault.
The CFSA pointed to programs offered by North Side Community Credit Union, ASI FCU and the Faith Community United CU as also being unavailable under such a cap.
“The payday loan alternatives recommended in the report provide another choice for consumers, but cannot be considered a replacement for payday loans,” said DeVault. “The authors of this report need to rethink their recommendations.”
For info: www.cfsa.net
