If there is a subject that the mainstream media and some governmental bureaus love to harp on about it is the payday lending industry. All you have to do is go online, watch a news program on television or open up the newspaper to see some sort of article or story about how payday lenders are the worst kind of people in the world. We’ve all seen stories about these “predatory lenders” charging sky-high interest rates and other fees, all the while keeping their regular customers in bondage to a never-ending cycle of escalating debt.
That’s pretty heavy stuff, right? But is it true? Are payday lenders preying on the poor and pulling a fast one on people who need access to fast money? And perhaps more importantly, are payday loan customers just a bunch of poor, uneducated people who are constantly being scammed by short term lending companies?
To find answers to these questions we need to turn to the governmental bureau that has been tasked with monitoring financial misconduct – the CFPB. This bureau receives thousands of complaints from people all over the country. The question, though, is whether or not a large volume of those complaints are related to the short term lending industry. Guess what, they’re not!
Recent data posted by the Consumers Financial Protection Bureau indicates that payday lending is way down on the totem pole with regards to complaints from actual customers. This data, which analyzed the first three years’ worth of complaints to the CFPB indicates that only about one percent of the complaints received are related to payday lending companies. To put that in perspective, the vast majority, around 66 percent of complaints, were filed against mainstream banks, credit card companies, debt collection companies and other established financial organizations.
Stop to think for just a minute what the only alternative to payday loans is for many people. That alternative would be withdrawing money from a traditional checking account to the point of a negative balance. We all know this practice better as paying overdraft fees to our friendly neighborhood banks. If the APR on overdraft fees were calculated the same way that payday loan fees are the worst case scenarios would see people paying upwards of 1700 percent for overdraft protection. Compare that to the much lower calculated APR on some payday loans (around 350 percent) and it is easy to see that overdraft protection fees are far more predatory than any payday loan could ever be.
The CFPB has even done somewhat of an about face when it comes to the payday loan industry. The bureau now suggests that using overblown APR data to understand short term payday loans is not all that accurate. This is because payday loan customers actually understand what they are getting when they apply for these types of loans. The average payday loan customer evaluates these types of loans with regard to fees charged, rather than calculating the APR that they could potentially pay on a short term loan.
While no one expects the CFPB to back down from its mission to protect consumers from predatory financial practices, it is nice to know that the hard data collected by this bureau proves to vindicate the payday lending industry a bit. It may be too late for some smaller lending companies that were forced out of business due to Operation Choke Point, but the message is clear – payday lending companies are not preying on their customers, and those same customers understand the short term lending industry better than many so-called financial experts out there.