Pew Charitable Trusts today issued the final report in its “Payday Lending in America” series. CFSA's response is as follows:
CFSA welcomes thoughtful discussion on how best to serve consumers in need of short-term credit. Unfortunately, Pew’s report does not advance a constructive dialogue, nor does it propose solutions that would enhance the short-term credit marketplace for consumers. Pew treats anecdotes and focus group commentary as hard data to evaluate credit options that consumers have utilized and valued for many years. Pew does not lend to the discussion any new quantitative research that would help determine whether borrowers would be better off using an installment loan rather than a single-payment payday loan. Further, Pew fails to recognize that longer-term installment loans have been available to consumers during the entire emergence and growth of payday lending, and it ignores the fact that payday loans may fill a different consumer need for small-dollar, short-term credit.
“CFSA members support providing more credit options to consumers and exploring new product innovations, including installment loans,” said Dennis Shaul, CEO of CFSA. “But we do not agree with Pew’s assertion that consumers would be better off with fewer credit options. Because there is no one-size-fits-all solution that meets the needs of every borrower, choice in the regulated short-term credit marketplace is a good thing for consumers.”
As part of our Best Practices, CFSA members for years have been offering more than a dozen industry-leading consumer protections, significantly more than Pew now endorses in its report. More importantly, CFSA believes strongly that policy decisions should be based not on rhetoric and anecdote as Pew has suggested, but rather on comprehensive research and a data-driven discussion about how to serve the evolving credit needs of millions of Americans.
CFSA BACKGROUND INFORMATION:
On Pew’s Proposal to Limit Consumer Choices:
- The Pew report argues for limiting consumer choices by totally replacing all payday loans with installment loans. Payday loans are among the least costly forms of short-term credit and, importantly, there is no research that demonstrates consumers would have better outcomes with installment loans.
- There is clear evidence of demand for short-term credit in today’s economy. Nearly 15 million Americans use payday loans to manage their financial obligations. Consumers need more choices, not fewer.
- Meanwhile, among short-term, small-dollar credit products, payday loans are often the best and least costly option for consumers. Bouncing a check can cost more than $50. Bank overdraft fees can cost $35 or more at large banks. By comparison, a payday loan usually costs about $15 per $100 dollars borrowed.
Problems with Pew’s Methodology:
- Pew’s research doesn’t stand up to scientific or academic rigor. It relies on anecdotes and focus groups, rather than controlled study of large data, or new quantitative research. For example, Pew’s analysis of installment loans in Colorado is derived from four focus groups in Denver and Colorado Springs with only 45 borrowers.
- Pew also conducted focus groups in at least two states that do not permit payday lending. Moreover, Pew further acknowledges that it did not research whether or not consumers have better outcomes from installment loans than from payday loans.
- Pew fails to distinguish between licensed and unlicensed lenders. There are distinct differences between the various models for payday lending. Pew’s views and findings are contradicted by other respected research. For example, contrary to Pew’s findings, an independent George Washington University study found 86 percent of customers believe a payday loan is a useful financial product and 88 percent were satisfied with their last transaction.
On Pew’s Endorsement of CFSA Best Practices:
- CFSA members for years have been offering several industry-leading consumer protections that Pew now endorses in its report, such as an extended payment plan at no additional cost for borrowers, fair collection practices and clear disclosures.
- CFSA supports requiring all payday lenders to adopt its industry-leading Best Practices.