shlep: the Self-Help Law ExPress

   Two days ago, we wrote about the outbreak of legislative battles over payday loans, saying it was a great case study in consumer protection regulation.  We noted that the industry had just started a campaign to fend off pending legislation with proposed self-regulation and a major advertising campaign for “responsible borrowing.”  Two recent Washington Post news stories were quoted in our posting.  Today, WaPo‘s “personal finance columnist” Michelle Singletary weighed in on the controversy, in “Payday Loans: Costly Cash” (Washington Post, February 25, 2007). 

Although she admits that payday lenders “are providing a service the people want,” Singletary leaves no doubt how she feels about payday lending.  After saying the industry’s new ad campaign purports to be aimed at creating responsible borrowers, she states that “more often than not, any use of payday loans is unwise,” and opines:

  “Using a credit card to buy things you can’t pay off the next month is bad enough, but to borrow against your next paycheck is the very definition of irresponsibility. It’s an incredibly unwise financial move.”

Singletary explains why “Consumer advocacy groups are highly critical of these loans,” and she then tries to figure out why “several minority groups have partnered with the CFSA to promote financial literacy . . . especially when so many payday storefronts are located in economically depressed minority neighborhoods?”  Her answer:

“Well, it turns out there’s money in it for the minority groups.

“The CFSA [Community Financial Services Association] is giving about $2 million to fund financial literacy programs for two groups, said its spokesman, Steven Schlein.

“The trade association is partnering with the National Conference of Black Mayors to host summits ‘to teach young people the importance of building a solid financial future.’ I certainly hope it’s a future that never involves a payday loan.”

The CFSA is also “teaming up with the National Black Caucus of States Institute” to — in the Association’s words — “educate African-American legislators and community leaders on critical issues regarding consumer credit, and provide community volunteers with resources they need to educate consumers in their communities on how to become credit savvy.”

    Singletary concludes: “What better way to try to fend off regulation than to partner with minority groups supposedly looking out for the very people their opponents say the industry is taking advantage of?”  I wonder if community leaders are trying to establish more affordable borrowing options for their constituencies?  I wonder if they sincerely believe that payday lenders would stay in their neighborhoods if they were forced by law to charge a reasonable interest rate?  [update: Ed Mierzwinski at U.S.PIRG Blog has some words to say about the tactics of trade associations and PR firms, including “Whether you are a payday lender, a telephone or cable company or even a tobacco company, you can usually find some consumer or community or, in this case, minority legislative group that needs the money and provides you with cover.”]

• After reading Singletary’s column, Brian Wolfman of the CL&P Blog wonders “whether the industry’s shareholders are ticked off that their money is being spent to help consumers act responsibly rather than to turn profits.”  If Singletary is correct that the ad campaign is likely to succeed in fending off unwanted legislation, the shareholders will surely have no complaints.  That is especially true when payday loan supporters have declared that interest rate caps — such as the 36% cap for military personnel — will put the industry out of business.
•    I couldn’t resist the temptation to click on an ad that popped up in one of my Google searches on this topic.  It was for Christian Faith Financial, which touts payday loans but is not a payday lender.  It is instead a “financial matching service.”  Although CFF does not claim to have any religious affiliation beyond its name (and a cross in its logo), the masthead has the following quote from Romans 12:21: “Be not overcome by evil, but overcome evil with good.”  To my surprise, I couldn’t find the quote from Matthew 21:12 about moneychangers.  
• One industry spokesman quoted in the Singletary column argues that “If it only cost $10 to bounce a check, I’m not sure we would have nearly as big a payday loan industry.”  He has a point.   Which politicians are willing to stand up to their campaign contributors in the banking sector to demand that $25 and $30 bounced check fees be brought down?