Plain Dealer’s Falsehoods about Payday Loans
Wednesday, April 16th, 2008 By Marc KilmerThe Cleveland Plain Dealer had an editorial today that advocated in favor of legislation by Representatives Batchelder and Hagan which would effectively ban payday lending. Unfortunately it does not appear that the editorial went through any fact-check process. While it is not a news story, I would hope that editorial writers would at least try to maintain some semblance of accuracy.
For instance, the editorial claims that “A 36 percent APR would amply compensate payday lenders for repayment risks.” That is simply untrue. A 36% annual percentage rate (APR) means that on a two-week loan (which is the term of a payday loan) a lender could only charge $1.50 per $100 borrowed. Considering the high default rate and high rate of overhead payday lenders incur, this would not even cover their costs. Make no mistake, a 36% APR is designed to drive payday lenders out of business. Opponents of payday lending should stop pretending otherwise.
The editorial goes on to say that “The lenders are first to claim that offering credit to Ohio’s poor is noble - and the last to admit it’s handsomely profitable.” Payday lending is certainly profitable. Of course, that points to the fact that these lenders are offering something people desire. Businesses that are unprofitable are unpopular. But are they “handsomely” profitable (whatever that means)? Well, if it means having a profit margin of between 4% and 8%, then I guess they are. Since this profit margin is lower than traditional financial institutions, however, it kind of points to the fact that the Plain Dealer editors don’t really know much about the issue.
The Plain Dealer makes its case for the Batchelder and Hagan bill based on completely specious reasoning. But that whole case against payday lending is based on this kind of rhetoric (I say “rhetoric” because there are few hard facts to use against payday lenders), so I guess we shouldn’t be surprised.
