Magazine article American Banker

Payday Lenders Discount Report's 'Quicksand' Title

Magazine article American Banker

Payday Lenders Discount Report's 'Quicksand' Title

Article excerpt

Payday lenders derided a study released last week by the Center for Responsible Lending that said the average payday borrower spends $793 for a $325 loan.

The report, titled "Financial Quicksand," said payday lenders earn $4.2 billion a year by charging excessive fees, and it recommended a 36% cap on the loans' annual percentage rate.

Steve Schlein, a spokesman for the Community Financial Services Association, a trade group for payday lenders, called the study a "blabber fest" that "rehashed" flawed statistics.

Payday loans, cash advances secured by a borrower's next paycheck, are routinely flipped into long-term loans with 400% annual interest rates, the report asserted. The Center for Responsible Lending also said that 90% of payday loan revenue comes from borrowers "trapped" in debt -- nearly the same percentage as it had reported in a 2003 study.

Michael D. Calhoun, the center's president, said, "Payday loans sink borrowers into quicksand-like debt."

In the 11 states where interest rates on such loans are capped, including Connecticut, New York, Massachusetts, and Georgia, the report said, borrowers save $1.4 billion a year in predatory lending fees.

The trade group countered that the statistics were inaccurate and intended to generate publicity for fair-lending advocates, which it said oppose almost every type of short-term credit product. Payday loans offer some borrowers the best option for small, short-term credits, the group said.

"Consumers know what the real alternatives are," Mr. …

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