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Think tank: Short-term loans not harmful to low-income borrowers

Think tank: Short-term loans not harmful to low-income borrowers

A well-respected Washington think tank analyst writes in a new column that the type of short-term loans made by members of The Ohio Consumer Lenders Association (OCLA) “provide a needed service that protects many people from hardship.”

“For the people who need them, (short-term) loans can be a lifeline,” wrote Thaya Brook Knight, Associate Director of Financial Regulation Studies at The Cato Institute, a non-partisan Washington-based public policy research organization and Libertarian-leaning think tank that bills itself as “dedicated to the principles of individual liberty, limited government, free markets and peace.”

Writing in The Hill, which covers Congress and the federal government, Brook Knight takes on a recent study by the Pew Charitable Trusts that is critical of the short-term lending industry.

She points out that the Pew study found that 81 percent of short-term borrowers said that if they did not have access to payday loans, they would cut down on expenses such as clothes and food.

“The fact that people buy food with their loans is not an argument for abolishing them,” Brook Knight wrote. “People having enough to eat is a good thing.”

Read full column at The Hill.

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Former top finance regulator to Feds: Don’t cut off short-term credit to consumers

Former top finance regulator to Feds: Don’t cut off short-term credit to consumers

A former top financial industry regulator is warning the Consumer Financial Protection Bureau (CFPB) that proposed new regulations could inadvertently destroy “a lifeline of credit for millions of responsible, low- and middle-income Americans.”

In a column for American Banker, William M. Isaac, a former chairman of the Federal Deposit Insurance Corp. (FDIC), wrote that he hopes the CFPB will heed his “words of caution while promulgating new rules on small-dollar lending.”

The CFPB is drafting new rules that many financial experts, lenders, members of Congress, regulators and others fear will restrict the type of short-term loans used responsibly by millions of Ohioans.

“Without a better understanding of (lenders) business models, profitability, loss rates, volume and overhead costs, regulators cannot possibly create a product that ensure consumers get the credit they need and deserve,” wrote Isaac, now senior managing director and global head of financial institutions at FTI Consulting. “Most research suggests the overwhelming majority of borrowers need credit because of a family emergency; a temporary, unexpected cash shortfall; or an occasional manageable gap between paychecks.

“Right now most of these consumers are getting credit when they need it,” Isaac continued. “Regulators must be careful that they do not destroy this supply of credit while trying to help the much smaller percentage of borrowers who probably should not be getting credit at all.”

Read Isaac’s column on the American Banker website.

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Poll finds payday borrowers overwhelmingly approve of service

Poll finds payday borrowers overwhelmingly approve of service

A bipartisan poll conducted by the Republican-leaning Tarrance Group and the Democratic-leaning Global Strategy Group has found that the people who use payday products strongly approve of them.

Ninety-four percent of borrowers surveyed for the poll agree that payday loans “can be a sensible decision to get needed cash when faced with unexpected expenses,” the Free Beacon writes…

“Those who use payday loans have limited alternative sources of credit, such as pawn shops, bank overdraft protection, credit card cash advances (where available), and informal lenders,” according to George Mason University law professor Todd Zywicki. “Although expensive, payday loans are less expensive than available alternatives.”

In addition to their comparable expenses, “payday loans are very simple and very transparent loans with a small number of terms, especially when compared to especially complex products such as mortgages or credit cards,” Zywicki explained in a 2009 paper.

Tarrance-GSG poll respondents overwhelmingly agreed on that point. Ninety-six percent of borrowers said they understood how long it would take to repay their loan, 95 percent said they understood the fees they would pay, 93 percent said the lender “clearly explained” the terms of the loan, and 85 percent said the lender explained what would happen if it weren’t repaid.

Nearly three quarters of borrowers said they “received better treatment from [their] payday lender than [they] received from a bank or credit card company.”

You can read more at FreeBeacon.com or view the full poll here.

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Congressional committee chairman defends short-term lending during Capitol Hill hearing

Congressional committee chairman defends short-term lending during Capitol Hill hearing

WASHINGTON – The chairman of a powerful Congressional subcommittee delivered a full-throated support of short-term lending during a Thursday hearing in Washington D.C.

Rep. Randy Neugebauer, R-Texas, Chairman of the Financial Institutions and Consumer Credit Subcommittee, said that “short-term, small dollar credit is essential to millions of Americans.”

“According to the FDIC, roughly 51 million American consumers are unbanked or underbanked, meaning they don’t have sufficient access to traditional banking services or products,” Rep. Neugebauer said, according to a transcript of his remarks to the Committee. “Fortunately, these individuals have been able to access a variety of products from non-bank lenders (and)… the marketplace is evolving and becoming more competitive.”

The Congressman’s committee held a hearing on new rules proposed by the Consumer Protection Finance Bureau (CPFB) that would diminish access to short-term loans.

“Unfortunately, the CFPB’s efforts represent yet another example of a Washington-knows-best mentality,” Rep. Neugebauer said. “Using behavioral economics, which by its very principles says policymakers should make choices for unsophisticated individuals, the CFPB has set down a road of paternalistic erosion of consumer product choice and access to credit.

“By its own analysis, the Bureau expects a roughly 60-70% market contraction for these products. This is the type of behavior that people across this country are tired of seeing come out of Washington,” he said. “I hope members will leave today’s hearing with a better understanding about the people who use the products, why they are important, and how they are already regulated.”

Read Congressman Neubebauer’s entire testimony here:

https://randy.house.gov/media-center/press-releases/neugebauer-leads-subcommittee-examine-cfpb-s-assault-short-term-small

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Congressional committee hears testimony on maintaining short term lending

Congressional committee hears testimony on maintaining short term lending

Today, a Congressional committee will hear important testimony about maintaining the ability of consumers to continue to have access to short term loans.

The Consumer Finance Protection Bureau (CFPB), an agency that wants to saddle the short-term lending industry and its customers with stifling and unnecessary regulations, is trying to push new rules that could severely impact the ability of millions of Americans and hundreds of thousands of Ohioans to procure short-term loans.

This afternoon in Washington, a U.S. House Financial Services subcommittee is expected to grill a top CFPB official about the attempt to curb the availability of short-term loans. Republicans on the committee are particularly concerned about the CFPB’s attempts to push borrowers toward banks, which many consumers shun due to high-costs, overdraft fees and other burdens.

“(These services) are inconsistent with current models of retail banking that depend on streamlined self-service and electronic transactions,” Dennis Shaul, chief executive of the Community Financial Services Association of America, told Payments.com.

In 2008, only 31 banks in the entire country offered loans smaller than $2,500, according to the FDIC.

Read more at Payments.com, and check back here for an update on the committee hearing.

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CashMax Ohio grows “Pay It Forward” program

CashMax Ohio grows “Pay It Forward” program

Stacey Nichols of CashMax Ohio in Chillicothe started a great tradition when she paid for a family’s meal at a local restaurant. It felt so good, she went back and did it again the next week.

Then, she came up with an idea: “Creating a Paying it Forward program at all 41 CashMax Ohio stores across the state.”

CashMax Ohio adopted the idea as reported in the Darke Journal:

Each Wednesday, a manager from every CashMax Ohio visits a local fast food restaurant and pays for the meals of the customers standing behind them in line. Since its inception, CashMax has effectively touched the lives of over 5,000 people/families as a result of this program.

“This kind of program and company-wide kindness makes CashMax an even better place to work,” Nichols said, “and a great place for our customers and our communities.”

CashMax Ohio has since expanded the program, and is now Paying it Forward once a week at grocery stores by selecting a person or family in the store and paying for their entire cart of groceries.

“A staff member and I went to Giant Eagle in Akron to do the new Pay It Forward program and it was an incredible experience,” said CashMax Ohio District Director Jason Luttrell. “We found a young mother and her two children with a cart full of groceries.

“When we approached her and told her what we wanted to do she was astounded, as were the grocery store workers,” Luttrell said. “She was holding back tears and she gave us a hug and thanked us. It is truly a privilege to work for a company like CashMax that consistently gives back to the communities they serve.”

Read more of this remarkable story here.

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University business professor exposes short-term lending critics as hypocrites looking to make a buck

University business professor exposes short-term lending critics as hypocrites looking to make a buck

In a compelling blog post George Washington University School of Business Professor Jeffrey H. Joseph exposes the Center for Responsible Lending (CRL) for a having a financial interest in eliminating the short-term loans millions of Ohio consumers use and depend on.

In a blog post titled “The Unnecessary Death of Payday Loans” published in The Hill, a news site that covers Congress and Washington politics and policy, Professor Joseph accurately points out that “short-term loans help borrowers avoid bouncing checks (which can cost more than a payday loan) and help borrowers pay their bills.”

Professor Joseph also calls out the unseemly and hypocritical founders of CRL, Herb and Marion Sandler, who are among those pushing the Consumer Finance Protection Board (CFPB) to impose strict limits on short-term lending. Here are excerpts of the blog post:

Leading the charge for tighter regulation is the Center for Responsible Lending (CRL), a group founded by Herb and Marion Sandler. Though CRL says its mission is to stop “abusive lending practices,” the Sandlers earned their fortune by offering adjustable rate mortgages with monthly payments that ballooned by thousands of dollars. These adjustable and subprime mortgages led to massive defaults, as highlighted by “The New York Times”, “60 Minutes” and others, and have been blamed for significantly contributing to the 2008 financial crisis ….

It turns out the CRL has a financial interest in eliminating payday loans. CRL’s parent organization is the Self Help Credit Union, which also offers short-term loans. A recent POLITICO report states emails between CRL and the CFPB show CRL was “pushing CFPB to support its own small-dollar loan product with a much lower interest rate as an alternative to payday loans.”

The irony is shocking. CRL’s founders peddled junk loans to people who couldn’t afford them, contributing to the housing crisis and Great Recession. Now CRL is lobbying to curtail short-term lending to vulnerable borrowers under the guise of stopping “abusive” practices, which will eliminate CRL’s competition while it peddles its own short-term lending products.

Professor Joseph concludes the blog post by accurately arguing that more big government regulations will put some short-term lenders out of business and hurt the 12 million Americans who each day borrow money through a short-term loan.

“Without access to regular banks or payday loans, many will turn to less regulated options such as pawn shops and loan sharks, or they’ll forego Christmas presents altogether,” Professor Joseph writes.”CFPB’s regulations are a lump of coal American families don’t deserve.”

Read the full column at TheHill.com.

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CashMax is paying it forward

CashMax is paying it forward

One of OCLA’s member companies, CashMax Ohio landed in the news recently thanks to their “Pay It Forward” campaign. From the Huber Heights Courier:

Recently managers and employees from the CashMax store in Huber Heights went to a local Kroger to do their “Pay It Forward Program” and paid for a man’s cart full of groceries. CashMax Ohio is doing this all over the state of Ohio.

“We went to Kroger looking to do our Pay It Forward program and at the front of the store a gentlemen strolled right in front of us with a cart filled with all kinds of Thanksgiving foodies and some basic home items. He lit up when we told him he wanted to pay the bill for his groceries,” said Sarah Healy, Assistant Manager Huber Heights CashMax. “After we paid, he shared a secret with us. The merchandise that was in his cart wasn’t for him, it was for a family that had fallen on hard times and he was helping them out. Knowing that made our event out to pay it forward that much better.”

Read more here.

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NY Fed: Slow Down On Short-Term Lending Reform

NY Fed: Slow Down On Short-Term Lending Reform

A blog posted on the website of the New York Federal Reserve calls for reframing the debate over short-term lending.

The post – written by three academics and the assistant vice president in the Federal Reserve Bank of New York’s Research and Statistics Group – also calls out the Center for Responsible Lending (CRL), one of the staunchest critics of short term lending, as a “nonprofit created by a credit union.” The conflict of interest is stark; the CRL continually blasts short-term lenders with junk research while carrying the water for a credit union, which competes for customers with short-term lenders. The writers even suggest that the goal of the CRL may be the total elimination of the short-term lending industry.

Read the blog post here at NewYorkFed.org.

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Access to short-term loans should be a right

Access to short-term loans should be a right

Executive vice president at Howard Stirk Holdings, K. Marques Mullings, succinctly sums up how important short-term loans can be for consumers:

As a former banker both pre- and post-housing market meltdown, I have firsthand experience of how much more difficult it has become to be approved for lending. Approvals are not only difficult for the borderline applicants, but also difficult for those with decent cash flow and FICO scores. The increased scrutiny of applicants by the underwriters working for traditional lenders, like banks, essentially locks a large segment of people out, thereby precluding them from obtaining traditional financial assistance.

The concept of supply and demand is one of the most fundamental principles of the free market underpinning the U.S. economy. When there is a void in the market, the free market allows room for businesses to supply the demand. According to the Federal Reserve Board, since the late 90’s, use of payday lenders has risen five-fold to the tune of $50 billion. When banks lock the consumers out, the market will address the need if the demand is high enough. The staggering numbers prove the demand is there and the demand was supplied with payday loan services.

“I consider (payday loans) a right, a right afforded to participants of a free capitalistic society,” Mullings continues. Read more at Washington Times.

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