WERTH: I was, and what he told me was that even though Hilary Miller was making substantial changes to the paper, CCRF did not exercise editorial control. That is, he says, he still had complete academic freedom to accept or reject Miller’s changes. Here’s Fusaro:
WERTH: It’s hard to say. Actually, we just don’t know. But whatever their incentive might be, their FOIA requests have produced what look like some pretty damning e-mails between CCRF — which, again, receives funding from payday lenders — and academic researchers who have written about payday lending.
CHRISTOPHER WERTH: Right. Well, it’s a non-profit watchdog, relatively new organization. Its mission is to expose corporate and political misconduct, primarily by using open-records requests, like the Freedom of Information Act, or FOIA requests, to produce evidence.
A streamlined and quick application process leads to an instant credit decision. Submit the application and get a yes or no right away. Good credit is not a loan requirement. An instant decision means you’ll know about your loan right away, so you’ll have time to pursue alternatives if you don’t get approved. All you need to get started is
So we are left with at least two questions, I guess. Number one: how legitimate is any of the payday-loan research we’ve been telling you about today, pro or con? And number two: how skeptical should we be of any academic research?
Prior to 2009 regulation of consumer credit was primarily conducted by the states and territories. Some states such as New South Wales and Queensland legislated effective annual interest rate caps of 48%. In 2008 the Australian states and territories referred powers of consumer credit to the Commonwealth. In 2009 the National Consumer Credit Protection Act 2009 (Cth) was introduced, which initially treated payday lenders no differently from all other lenders. In 2013 Parliament tightened regulation on the payday lending further introducing the Consumer Credit and Corporations Legislation Amendment (Enhancements) Act 2012 (Cth) which imposed an effective APR cap of 48% for all consumer credit contracts (inclusive of all fees and charges). Payday lenders who provided a loan falling within the definition of a small amount credit contract (SACC), defined as a contract provided by a non authorised-deposit taking institution for less than $2,000 for a term between 16 days and 1 year, are permitted to charge a 20% establishment fee in addition to monthly (or part thereof) fee of 4% (effective 48% p.a.). Payday lenders who provide a loan falling within the definition of a medium amount credit contract (MACC), defined as a credit contract provided by a non-deposit taking institution for between $2,000–$5,000 may charge a $400 establishment fee in addition to the statutory interest rate cap of 48%. Payday lenders are still required to comply with Responsible lending obligations applying to all creditors. Unlike other jurisdictions Australian payday lenders providing SACC or MACC products are not required to display their fees as an effective annual interest rate percentage.
MANN: If your prior is that none of the people using this product would do it if they actually understood what was going on — well, that just doesn’t seem to be right because the data at least suggests that most people do have a fairly good understanding of what’s going to happen to them.
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Congress had been so concerned about the effects of payday loans that in 2006 it passed the Military Lending Act, which, among other things, capped the interest rate that payday lenders can charge active personnel and their dependents at 36 percent nationwide. So what happened next? You guessed it. A lot of the payday loan shops near military bases closed down.
“My French identity is reinforced by the very large number of people who openly declare, often now with violence, their hostility to French values and culture,” he said. “I live in a strange place. There is so much guilt and so much worry.” We were seated at a table in his apartment, near the Luxembourg Gardens. I had come to discuss with him the precarious future of French Jewry, but, as the hunt for the Charlie Hebdo killers seemed to be reaching its conclusion, we had become fixated on the television.
So, the payday business model is not like a pawn shop, where you surrender your valuable possessions to raise cash. To get a payday loan, you need to have a job and a bank account. According to Pew survey data, some 12 million Americans — roughly 1 in 20 adults — take out a payday loan in a given year. They tend to be relatively young and earn less than $40,000; they tend to not have a four-year college degree; and while the most common borrower is a white female, the rate of borrowing is highest among minorities.
DUBNER: Let’s say you have a one-on-one audience with President Obama. We know that the President understands economics pretty well or, I would argue that at least. What’s your pitch to the President for how this industry should be treated and not eliminated?
RONALD MANN: I have a general idea that people that are really tight for money know a lot more where their next dollar is coming from and going than the people that are not particularly tight for money. So, I generally think that the kinds of people that borrow from payday lenders have a much better idea of how their finances are going to go for the next two or three months because it’s really a crucial item for them that they worry about every day. So that’s what I set out to test.
So in the state that didn’t pass it, payday lending went on as before. And this let Zinman compare data from the two states to see what happens, if anything, when payday-loan shops go away. He looked at data on bank overdrafts, and late bill payments and employment; he looked at survey data on whether people considered themselves better or worse off without access to payday loans.
The decline of marriage is upon us. Or, at least, that’s what the zeitgeist would have us believe. In 2010, when Time magazine and the Pew Research Center famously asked Americans whether they thought marriage was becoming obsolete, 39 percent said yes. That was up from 28 percent when Time asked the question in 1978. Also, since 2010, the Census Bureau has reported that married couples have made up less than half of all households; in 1950 they made up 78 percent. Data such as these have led to much collective handwringing about the fate of the embattled institution.
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DEYOUNG: That’s a very standard disclaimer. The Federal Reserve System is rather unique among regulators across the world. They see the value in having their researchers exercise scientific and academic freedom because they know that inquiry is a good thing.
The banking industry says it is simply serving customers who have authorized the lenders to withdraw money from their accounts. “The industry is not in a position to monitor customer accounts to see where their payments are going,” said Virginia O’Neill, senior counsel with the American Bankers Association.
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Proponents of minimal regulations for payday loan businesses argue that some individuals that require the use of payday loans have already exhausted other alternatives. Such consumers could potentially be forced to illegal sources if not for payday loans. Tom Lehman, an advocate of payday lending, said:
If you have concerns about taking a payday loan, don’t worry. Check ‘n Go is an industry leader and a founding member of the Community Financial Services Association, which promotes responsible lending practices and monitors consumer protection. And we’ll be here for you every step of the process. Our customer service representatives are ready to help when you need it.
Another form of a payday loan, a cash advance can help get you through to your next paycheck when unexpected expenses arise. Step into one of our convenient store locations to apply, and avoid things like late fees, overdraft charges, and reconnect/reactivation fees.
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A spokeswoman for Bank of America said the bank always honored requests to stop automatic withdrawals. Wells Fargo declined to comment. Kristin Lemkau, a spokeswoman for Chase, said: “We are working with the customers to resolve these cases.” Online lenders say they work to abide by state laws.
Some state and federal authorities say the banks’ role in enabling the lenders has frustrated government efforts to shield people from predatory loans — an issue that gained urgency after reckless mortgage lending helped precipitate the 2008 financial crisis.
While the banks, which include giants like JPMorgan Chase, Bank of America and Wells Fargo, do not make the loans, they are a critical link for the lenders, enabling the lenders to withdraw payments automatically from borrowers’ bank accounts, even in states where the loans are banned entirely. In some cases, the banks allow lenders to tap checking accounts even after the customers have begged them to stop the withdrawals.
A recent law journal note summarized the justifications for regulating payday lending. The summary notes that while it is difficult to quantify the impact on specific consumers, there are external parties who are clearly affected by the decision of a borrower to get a payday loan. Most directly impacted are the holders of other low interest debt from the same borrower, which now is less likely to be paid off since the limited income is first used to pay the fee associated with the payday loan. The external costs of this product can be expanded to include the businesses that are not patronized by the cash-strapped payday customer to the children and family who are left with fewer resources than before the loan. The external costs alone, forced on people given no choice in the matter, may be enough justification for stronger regulation even assuming that the borrower him or herself understood the full implications of the decision to seek a payday loan.
DUBNER:OK, so this is interesting that a watchdog group that will not reveal its funding is going after an industry for trying to influence academics that it’s funding. So should we assume that CFA, the watchdog, has some kind of horse in the payday race? Or do we just not know?