Under attack from community groups and forced to the sidelines by some state legislatures and banking regulators, payday lenders are going on the offensive.
The industry's largest trade group has hired a well-known crisis management firm, Dezenhall Resources LLC in Washington, to fight charges that their loans are predatory and to challenge the motives of some critics.
Topping its list of enemies are credit unions, which payday lenders claim are behind efforts to drive them out of several states and end partnerships with community banks, all in an attempt to gain share in the lucrative market for short-term loans.
The payday lenders' aim with its new campaign is "to educate regulators, consumers, and legislators that ours is not the most expensive product," said Lynn DeVault, the president of the Community Financial Services Association of America, the industry's trade group.
DeVault, who is also president of Jones Management Services LLC, the Cleveland, Tenn., parent of Check Into Cash, said the campaign will also target banks that offer overdraft protection on checking accounts. She said banks providing overdraft services are in effect offering payday loans without any of the disclosures or restrictions that payday lenders face.
Legislative Setbacks
But for now the focus of the campaign is on credit unions.
The payday lending industry has had its share of regulatory and legislative setbacks of late. A bill now before the governor of Georgia would ban payday lending there. In 2002 and 2003 three of the four federal banking regulators forced banks and thrifts out of payday lending partnerships, so no federally chartered institutions work with payday lenders. And in 2001 the North Carolina legislature let the law that permitted payday lending in the state expire without renewing it.
Steven Schlein, a Dezenhall employee acting as a spokesman for the trade group, said the credit union industry was a driving force behind the legislatures' action. He has put together a detailed report in which he writes that a group called the Coalition for Responsible Lending in Durham, N.C., is funded entirely by Self-Help Credit Union, also in Durham, and that Self-Help employs 12 lobbyists dedicated to fighting payday lending across the country.
This and the fact that credit unions in North Carolina, Chicago, and elsewhere offer short-term loans similar to payday loans demonstrate a concerted effort to get into the lucrative business, he claims. "What I'm trying to get across...is that the credit unions are behind the consumer groups that are trying to put us out of business," Schlein said in an interview.
But credit union officials say that is absurd, because credit unions can lend only to their members and, because of field-of-membership restrictions, cannot set up wide networks of storefronts to reach as many people as payday lenders can.
The $114-million Self-Help Credit Union funds the Center for Responsible Lending, a research and policy organization, said Malcolm White, the director of communications for the center. The credit union also provides funding for one part-time staff person for the Coalition for Responsible Lending, which is a group of nonprofits and financial institutions that advocates against payday and predatory lending in North Carolina.
Peter Skillern, the executive director of the Community Reinvestment Association of North Carolina, which has also been active in opposing payday lending, said his group does not take money from credit unions.
Bill Hampel, the chief economist for CUNA, said there would be little profit in payday lending for credit unions because of the restrictions they operate under. Federal credit unions, more than half of the national total of about 9,800, are barred by law from charging more than 18% on their loans. Payday lenders, by contrast, typically charge fees of $15 to $17 per $100 borrowed, which translates into an annual interest rate of 300% to 400%.
Loans Don't Cover Costs
Echoing Hampel, Ed Jacob, the manager of North Side Community Federal Credit Union in Chicago, said that it makes payday alternative loans of $500 at 16.5% for six months, and that these loans are not profitable. He said he earns about $25 in interest on each loan, which does not cover the costs of making them.
But even though he loses money on them, Jacob said, short-term loans do serve the strategic purpose of helping to recruit members. "I'm looking more long-term-can this person over time become a profitable customer?" he said.
Billy Webster, the chief executive officer of Advance America Cash Advance Centers Inc. of Spartanburg, S.C., said the absence of overdraft products from the debate illustrates how payday loans are singled out. His industry must "be more aggressive in...framing the issue to include everyone and not letting us get thrown under the bus," Webster said.
