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Letter: Payday Loans are Good

Lawrence Meyers responds to a letter we posted yesterday entitled "Payday Loans are Bad." In it, he says he "provides facts, not mythology."

Steven V. Martino’s letter of 1/29 is typical of payday lending opponents.  It is long on accusations and short on facts.  When presented with reasoned analysis in the comments section, Martino refuses to address the arguments, instead using the ad hominem fallacy by declaring anyone who disagrees with him to be “clueless” and asking, “how much is the industry paying you to say these things?”

I’ve seen this style of “argumentation” for eight years, ever since I began writing about the industry in the financial press.  Opponents see a high APR, conclude the loan is predatory, and stop there.  They never dig any deeper, and when presented with logical and factual arguments, they respond with the ad hom argument because the facts are not on their side.

So let’s get down to business and examine this issue in detail.

There is a need for short-term credit. At one time, people obtained personal lines of credit from finance companies, later purchased by the banks, which didn’t find them profitable enough, so they shut them down.  People were left with few options, so they usually would bounce a check at a cost of $50-$60 per check, which would often trigger multiple checks bouncing.


Short Term Credit Choices

There are now many options for short-term credit, of which PDLs are neither the most nor least expensive.   Here is a list, with national average cost per hundred dollars borrowed.

Borrow from a friend/employer

Cost per 2 weeks: $0;  0% APR 

Credit Card Advance

Cost per 2 weeks: $1;  26% APR

Installment Loan

Cost per 2 weeks: $3 - $8;  78% - 208% APR; longer term & larger loans = higher cost


Cost per 2 weeks: $9;  234% APR

Bank Payday Loan (Wells Fargo; Fifth Third, et al)

Cost per 2 weeks: $10;  260% APR

Auto Title Loan

Cost per 2 weeks: $10 - $12;  260% - 312% APR 

Payday Loan

Cost per 2 weeks: $15;  390% APR

Online PDL

Cost per 2 weeks: $25 - $30;  650% - 780% APR 

Utility Late Fee

Cost per 2 weeks: $46;  1,196% APR 

Bank overdraft fees

Cost per 2 weeks: $60;  1,560% APR

Loan Shark

Cost per 2 weeks: No maximum 

Criticism of Payday Loans

Opponents criticize the cost of PDLs as being “too high”.  They use “Annual Percentage Rate”, or APR, to judge the cost.  However, even when judged on an APR basis, PDLs are neither the most nor least expensive form of credit.  Nor do customers care what the APR is.  They care about the flat price.  A customer will never ask, “What’s the APR”?  They will ask, “What’s the price”?  They want to know how much, in dollars, they will need to repay.

Martino denies that payday loans are “better than…bank overdrafts and late fees”.  Well, they are!  Ever paid a late fee?  Ever bounced a check and gotten hit with the $30 NSF fee and $30 merchant fee?  And that’s what you pay no matter how small the amount of the NSF!  What planet is Martino living on?

Opponents like Martino claim that users of PDLs “often” get “trapped in a cycle of debt”.  Yet, 94% of all payday loans are paid back on time, as reported in the SEC filings of public payday loan companies. 

Martino’s other arguments are absurd in the extreme, and revelatory of someone who has never needed a payday loan, never entered a store, never talked with lenders, never talked with borrowers, and never read a single credible study.

He claims, “Payday lenders set up shop in some of our state's poorest communities.”  In truth, they set up shop in the areas where their services are most likely to be needed.  Does Martino think setting up a payday loan store in the richest community in town would make for good business?  Guess what?  There’s also a reason those evil fast food restaurants set up shop next to freeway exits.

Martino says, “They attract folks who have no money, no savings and, often times, little-to-no credit.”  That is the point of short-term credit, to offer credit to those who need it and who have limited options.  Would you offer unsecured short-term credit to someone who has money, lots of savings and great credit? 

The silliest remark, for which Martino offers no evidence, is that “Financially strapped customers borrow an amount they must pay back in two to four weeks, and then they borrow and re-borrow that same amount for years.”

No, they don’t.  The recent study by the Pew Charitable Trust showed that the average borrower takes out about 8 loans per year.  There is a need for short-term credit, made even more necessary by stagnant wages over the past few years.  And if people choose to use that credit, why does Martino care?  His assumption is these people are stupid when, in fact, every credible study ever released shows they know exactly what they’re doing.  People shop for credit like they do any product. 

Martino claims borrowers would be “better off without it”, and yet ignores the Donald Morgan study out of the NY Federal Reserve, and a litany of other studies, that show that restricting credit pushes people to products they had already rejected, and it always costs them more. 

He also claims, “Payday lenders also go to great lengths to restrict repayment plan options”, when in fact most states require these payments plans, and members of the industry trade association are required to offer them.  Martino doesn’t understand that a lender wants a customer who pays back the loan, not one who renews it several times, ends up defaulting on principal, and who must subsequently be chased down for collections.

This is the problem payday lending faces – ignorant people spouting off about something they have no knowledge of.  But hey, I’m sure Martino just regards me as being on the industry payroll.  Should I assume, therefore, that he is on the payroll for the Center for Responsible Lending? 

I think readers can guess what the truth is here.  Payday loans aren't bad.  What they are is a CHOICE.  Freedom = choice.  Martino wants to strip people's freedoms away because HE thinks something is bad.  How about this instead?  How about if Martino comes up with a competing product to payday lending?  If he can make it profitable, I know firms that will fund it.

I'm not holding my breath.

- Lawrence Meyers

Joe Richer January 31, 2013 at 12:51 PM
"Freedom = Choice"...Bravo Lawrence!!! When willing honest buyers meeting willing honest sellers...both parties win.
Raul Jamieson Miguel January 31, 2013 at 01:30 PM
That's like WWE star Ryback getting in the ring with some local athletes, and giving them the old slobber knocker. This is exactly how you sweep the leg. I would be looking forward to an educated response from Mr. Martino, but I don't think that will be happening, because after all, we all are "clueless."
Lawrence Meyers January 31, 2013 at 03:26 PM
So they do, Joe! That's called the free market.
Lawrence Meyers January 31, 2013 at 03:26 PM
Raul, I imagine we'll get another scatological response. Either that, or he'll slink back into the hole he emerged from.
Raul Jamieson Miguel January 31, 2013 at 04:27 PM
Stephen, You will benefit (like most foolish occurances do) because there are enough payday people out there who were truly negatively affected. You will prove "correct" just like the woman who spilt Dunkin Donuts Hot Coffee on herself, as was able to sue because it was "too hot." You will prove "correct" like the man who sued McDonalds for making him fat and won. You will prove "correct" like the woman who reached up too high at a Walmart and had a heavy item fall on her head and won. You will win because there are enough foolish people out there who accept the risk and complain about them later. Unlike you, I believe that someone can be just as negatively affected by OD'ing a bank (and constantly have to crawl back from -300 or -400 dollars worth of OD). People win stupid lawsuits all the time -- it won't surprise me to see the payday loan industry collapse as a result. Does that make you a success? Hell no, you are just a lowlife who abused these people for personal gain, and am trying to get out so no one can hang your feet to the fire, and go "haha told you that was gonna happen." Doesn't exactly make you Socrates.
Tom at Oak Lawn January 31, 2013 at 04:30 PM
Well I see it from two perspectives. Payday Loan providers are providing a desperate service to people with little-to-no credit whom the regular banks will not serve. While they may be good people, their credit histories attest that they have not handled credit responsibly in their past. Having worked in banking for close to 20 years, I know these folks, sadly, have no other options. On the other hand, PDL providers are in the business of cashing-in on the poor choices of the uneducated or misinformed, plain and simple. And they laugh all the way to the regular banks. They're the bottom-feeders in the financial business.
Raul Jamieson Miguel January 31, 2013 at 04:35 PM
That I would agree with -- If they didn't make $$, they wouldn't offer their service. Problem is, there are thousands who do need money fast for various reasons and wouldn't qualify for bank-backed loan for various reasons. Credit is too low is usually the biggest one, as banks don't want to deal with anyone without sufficient credit history/score. So do you blame the banks for that? I don't, most blames don't want to open themselves up to risk, too much BS with that. I don't support payday loans because of the fact they benefit from the poor, but that I think it is an alternative which to many is better than not paying specific bills or having no liquid money, etc. It's almost like a 50/50 thing.
Joe Richer January 31, 2013 at 05:45 PM
All vendors charge what the market allows for their service. If you were selling waffles wound you want someone not involved to tell you what is "fair" for you to charge for wafflles? Why is this different?
Raul Jamieson Miguel January 31, 2013 at 09:12 PM
Also, can we discuss the misleading title to this article ... I don't think Lawrence is advocating that payday loans are by any means good. I think he (like some) are saying that they are better than some of the alternatives, and do provide a service (short-term credit).
Frank Cotton February 01, 2013 at 05:03 AM
Larry, could not agree with you more. I think the most important statement you make, that applies to both Martino and politicians alike, is that they have never had a need for a short term loan, and cannot understand the importance of such a loan being available. There will always be a demand for this product, whether a payday loan, installment loan or line of credit, and if these are taken away, the most likely alternative is much more painful; both financially and physically.
Stuart Newsome February 01, 2013 at 05:47 PM
Education, credit scores, and income are not indicators of common sense; in fact more often they are inversely proportionate. Yet the driving assumption behind most arguments against payday loans: the lower your income, the more we must sequester you from any form of credit. This vandalism of the poor, painting them as too ignorant and prone to folly to be anything but victims of commerce, is what's keeping their options so limited.
Small Change February 01, 2013 at 06:06 PM
So are we saying that there is no such thing as usury, and that this should NEVER be a crime, or regulated, regardless of rates and terms, as long as the buyer is willing?
Joe Richer February 01, 2013 at 06:59 PM
Not quite, like the market for any goods or services there are conditions of fraud, monopoly, and force that prevent a market from being "free". IMHO, if one can make the case that seller (or buyer) are usinig such tactics - then there's a problem. Otherwise money lending should be like the sale of any good or service.
Eric Agrelius February 02, 2013 at 12:30 AM
Great article! Hopefully, a few curious opponents will take the time to read this and reach a logical conclusion; Short Term Lending is designed for that purpose.... Short Term! If you need to get from Times Square to Grand Central, you take the subway or a taxi (i.e. Short Term) Customers do not grab a cab in Manhattan for transportation to Chicago!
stephen v. martino February 04, 2013 at 06:57 AM
Get this...Lawrence Meyers is an out-of-state payday loan insider, with no real interest in what's happening here in RI, aside from the paycheck he earns from his predatory payday loan puppet masters. His dull, monotonous letters and articles have appeared in numerous other states where payday lending has been banned or threatened by legislation. He also works hand-in-hand with some lame out-of-state group called the Fairness to Payday Lenders Society...their spokesman Jackson Strain can be reached at bizmaven9@gmail.com. Lawrence's bogus literature can be found online and on the group's website, along with Mr. Strain who goes by the fake name of "Jack Johnson" on patch.com. You're industry is a joke and so are you, Mr. Meyers....You and your little payday toadie, Jackson Strain.
Joe Richer February 04, 2013 at 01:27 PM
This note could have not effect on my arguments. We live in a nation of free men and women. So long as there is no taint of force, fraud, or monopoly I would not stand between a willing buyer and a willing seller. These lenders force no one to borrow from them. You've presented no evidence that they lie about their terms (fraud), and I see banks and lending instityutions everywhere (monopoly). So just what is the problem?
stephen v. martino February 04, 2013 at 06:47 PM
Joe: Do you have an email? You seem decent...I would love to explain myself to you, since you seem like you might be willing to learn. Thanks.
jack Johnson February 04, 2013 at 06:54 PM
Don't take the bait, Joe. Stephen sends me profanity-laced emails, and as you can see, he can't argue facts. All he does is spew personal insults.
Benjamin John Coleman February 04, 2013 at 10:36 PM
10 Dirty Secrets of Payday Lending: http://www.ripayday.org/?p=191
stephen v. martino February 05, 2013 at 05:56 AM
http://www.bloggernews.net/121385 Here's the proof...Meyers interviewing Strain about this repulsive and disgusting industry. They're both out-of-state payday lenders, who siphon millions off the backs of the poor, disabled and the elderly.
jack Johnson February 05, 2013 at 06:08 AM
Proof of what? That Meyers has made you look like a fool? Or rather, that you continue to make yourself look like a fool? All you do is make personal attacks. You've never once addressed any factual point that's been made. You're just a troll desperate for attention.
Joe Richer February 05, 2013 at 04:35 PM
Why not explain yourself right here? What do you have to say to me that cannot be said here? I am always willing to learn. Are you? What have you to say about my conjecture that this is a matter of liberty and the rights of men and women to conduct commerce as they agree to conduct it?
jack Johnson February 05, 2013 at 10:06 PM
Yes, Stephen. Why not explain yourself right here?
mikey mike February 07, 2013 at 02:09 AM
my names mike and i used to go cash advance and check and go. i tried to read this article but it was kinda confusing. i saw the other guys article too and i was like oh snap that happened to me and my gf.we took oyut a loan from cash advanced and when we had to pay it i couldnt afford it. we went to check and go so we coul;d pay the other one and then we kept goin to both places for like 2 years. we tried to do make payments but the girl told us our check would get cashed and she said to jus borrow it from a friend or somebosy in my family. at first i was like wow i can borrow money but after a while it was hard to keep paying. my mom,dad, gf and her parents was goin to both places for a long time.i dont wanna get involved but i dont think payday loans are good at all. nobody should go to cash advance or check and go cuz it like a trap.
jack Johnson February 08, 2013 at 04:38 PM
Stephen Martino has scrubbed the website of all his scatological replies, where he used words like "mooning you with my hairy ass" and "turds". Fortunately, I have screen captures.


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