Why I can’t defend payday lenders

By Brian Kirwin

I have heard several elected officials and read a few bloggers defend payday lenders, and honestly, if their arguments were the end of the discussion, it would be easy to let the industry exist. But then the industry opens its mouth and makes itself indefensible.

I understand the pro-payday lending arguments. It’s a legitimate business, when it’s run how it should be. Banks won’t make small loans, so for those with shaky credit or short term needs, it probably performs a service.

But payday lenders have all but admitted they can’t survive on the occasional borrower. From today’s Daily Press:

“We continue to have concerns about how lenders will be able to operate under this new regulatory framework,” said Tommy Moore, Community Financial Services Association executive vice president.

The legislation limits borrowers to one loan at a time and 5 loans in a 6 month timeframe. Mr. Moore, if your industry can’t survive without people who take out multiple loans at a time and people who take out loans once a month or more, I don’t know if you need to exist. Your public comments say to me “the industry needs people cycling debt to operate.”

The legislation still has holes. Spouses can undo the new regulations by alternating loans - He takes out a loan, she takes out another to pay off his, he takes one to pay of hers - you get the idea.

But it does call an industry bluff. All the hype about the occasional borrower with an unexpected bill is a bunch of hooey, since this legislation actually increases the profit payday lenders make from occasional users. And the industry is complaining. They complain that the industry may collapse under rules limiting loans to one at at time and 5 in 6 months.

If that’s true, maybe it needs to collapse.

Now, don’t think banks are absolved from this either. They’ve put credit cards in the hands of people with rotten credit with juicy low interest rates, and the second they’re late on a payment, they retroactively hike the interest to the moon. I can’t figure out how THAT’S legal either.

But payday lending advocates who point to that credit mess hoping to get me to ignore their credit mess are hopelessly misguided. I don’t work that way.

But debt is a problem, especially when the economy slows. $300,000 homes for folks with low incomes should’ve set off red flags. Credit card limits well above what people could ever expect to pay back should set off red flags. And someone who needs a payday loan every month should set off a red flag.

And, yes, the responsibility should be the individual’s. No one can claim government does any better staying out of debt. But when reasonable limits on borrowing are opposed by the industry with claims that they can’t survive without the most extreme repeat borrowers continuing their debt trap, you won’t get a pat on the back from me.