shlep: the Self-Help Law ExPress

    Payday lending is a hot issue in legislatures and editorial rooms across the nation (see Google News; our lengthy prior post discusses the issues and links to many resources; update: WaPo on Payday Loans and PR strategies, Feb. 25, 2007).  It would be hard to find a better case study in the process of “consumer protection” regulation than the maneuvering and arguments of all the stakeholders in the payday lending debate.  The problem is how to balance the goal of traditional consumer advocates to prevent predatory lending and the victimizing of vulnerable consumers with the desire to give consumers marketplace options and businesses the freedom to serve and profit from consumer demand.

• The National Conference of State Legislatures has a chart of state laws relating to payday lending, and a list of pending legislation.
• As the Sioux Fall, S.D., Argus Leader explains, critics say: “Payday lenders offer short-term loans to consumers, typically to be repaid with their next paycheck. Strapped borrowers often struggle to repay, founder in a cycle of debt and repeatedly roll the loans over, racking up fees of 300 percent or more on an annual basis.”  On the other hand, the payday advance industry and its supporters reply that “the industry fills a needed gap. Many people who have bad credit and pressing money needs don’t qualify for traditional bank loans. Short-term lenders serve that group.” 

According to the Sioux Fall, S.D., Argus Leader, “more than 50 bills aimed at clamping down on payday lenders have been introduced in statehouses across the country.”  Bills passed in Virginia last week (Washington Post, “House Passes Payday Lending Reform Bill Without a Rate Cap,” Feb. 17, 2007; via CLPBlog) and South Dakota this week (Argus Leader, “Lawmakers limit payday loans: Borrowers could get only $500 from one lender,” Feb. 22, 2007), that would limit the dollar amount of loans to each borrower.  Many consumer advocates say that is not enough and want a rate cap on payday loans, similar to the 36% annual rate cap that exists now in federal law for military personnel (and which Gov. Arnold Schwarzenegger endorsed this week for California’s armed services members). 

   Although it is rather late in the legislative season, the payday advance industry has released its own self-regulation proposal this week, in an effort to prevent the passage of laws that will hurt their business.  See Argus Leader, “Payday lenders try to avoid regulation: Industry volunteers to better police itself,” Feb. 23, 2007; Washington Post, “Payday-Loan Group Tries To Fend Off Restrictions,” Feb. 22, 2007.  As the Washington Post reported yesterday:

“Under the program announced yesterday, members of the Community Financial Services Association of America, which represents such payday lenders as Advance America and Check ‘n Go, agreed to give strapped borrowers at least one opportunity a year to extend the term of their loans by a few weeks at no extra charge, if borrowers notify them before the loans are due. The industry has backed similar plans in several states, including Virginia. . . .

“The trade group said 46 members of Congress signed a letter to Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, supporting its self-regulatory effort.

  “The group yesterday began airing an ad on BET, Food Network and other television networks, telling people to ‘please borrow only what you feel comfortable paying back when its due’.”

The Argus Leader added that “payday lenders this week volunteered to quit promoting loans for vacations and other “frivolous” spending.”  WaPo cites Del. Onzlee Ware (D-Roanoke), a supporter of the capless Virginia bill, as saying that payday loans “give poor residents a choice instead of having to rely on charities and churches when they need cash.”  In South Dakota, the Argus Leader tells us: “Sen. Tom Dempster, the Sioux Falls Republican who heads the Senate Commerce Committee, said the [capless] South Dakota legislation is an earnest attempt to curb predatory lending without cutting off a sometimes necessary avenue to credit.”

This is a fascinating debate and legislative process.  The industry has fervent critics and supporters in every legislature (makes some cynics want to learn more about campaign contributions to particular legislators).  Political junkies, bleeding heart consumer advocates, government-hating libertarians, coldhearted free-marketeers, and all the rest of us will find a lot to chew over and argue about by following the links in this post.

• Go to the website of the Community Financial Services Association of America to see the payday advance industry’s best arguments and “best practices” proposals. In their Consumer Guide they conclude that “Consequently, payday advances are inappropriate when used as a long-term credit solution for ongoing budget management.”
• Go to the website of The Center for Responsible Lending to see the arguments against payday loans and suggestions for regulation and for alternative credit sources.  Our prior post has other links.
•   At the weblog Credit Slips, you’ll find an interesting piece titled “Talking to a Payday Lender,” (Feb. 15, 2007; via CLPBlog, Feb. 15, 2007) in which consumer law professor Bob Lawless discusses his students’ experiences serving as mock legislators facing the problem of payday lending.  As part of the project they did field work posing as prospective loan clients.  The Comments are quite interesting, too.