Reality Check: Payday Trade Group Offers One Falsehood After Another to CBS News in Defense of Industry

RHETORIC:  Payday Borrowers Are Aware of the Financial Costs

A spokeswoman for the Community Financial Services Association of America (CFSA), a trade group that represents payday lenders, defends the industry’s practices, insisting that the group’s members do take a borrower’s ability to repay into account. Citing survey data, she also said the vast majority of payday borrowers weigh the risks and benefits before taking out a loan, arguing that most are aware of the overall financial costs. [CBS News: “1,000% Loans? Millions of Borrowers Face Crushing Costs,” 4/25/16]

REALITY: Non-Payday Lender Funded Study Shows That Majority of Payday Loan Consumers Feel Taken Advantage of by Payday Lenders and Nearly 3/4s of Borrowers Support More Regulation of the Industry

55% Of Payday Loan Consumers Feel Payday Loans Take Advantage of Borrowers. [Pew Charitable Trust: “How Borrowers Choose and Repay Payday Loans,” 2/2013]

72% Of Payday Borrowers Favor More Regulation of the Industry. [Pew Charitable Trust: “How Borrowers Choose and Repay Payday Loans,” 2/2013]

RHETORIC:  Payday Lenders Take Ability to Repay into Account

A spokeswoman for the Community Financial Services Association of America (CFSA), a trade group that represents payday lenders, defends the industry’s practices, insisting that the group’s members do take a borrower’s ability to repay into account. Citing survey data, she also said the vast majority of payday borrowers weigh the risks and benefits before taking out a loan, arguing that most are aware of the overall financial costs. [CBS News: “1,000% Loans? Millions of Borrowers Face Crushing Costs”, 4/25/16]

REALITY: The Vast Majority of Borrowers Rolled Over Their Loans into New Loans Within Two Weeks and Most Renewed Seven or More Times in a Row

CFPB: Three Quarters of Loan Fees Came from Borrowers Who Had More Than 10 Payday Loans in A 12 Month Period.

“When unrestrained by regulation, the typical two-week payday loan can be immensely profitable for lenders. The key to that profitability is for borrowers to take out loans over and over. When the CFPB studied a sample of payday loans earlier this year, it found that three-quarters of loan fees came from borrowers who had more than 10 payday loans in a 12-month period.” [Cincinnati Enquirer, 8/11/13]

CFPB: 80% Of Payday Loans Are Rolled Over into New Loans Within 14 Days.

“That’s when things get expensive. A whopping four out of five payday loans are rolled over into new loans within 14 days, and one out of five new payday loans end up costing the borrower more than the amount borrowed, according to the CFPB.” [Yahoo Finance, “The Reign of Payday Lenders May Soon Be Over,” 8/13/14]

CFPB: 20% Of New Payday Loans Cost the Borrowers More Than the Amount Borrowed.

“That’s when things get expensive. A whopping four out of five payday loans are rolled over into new loans within 14 days, and one out of five new payday loans end up costing the borrower more than the amount borrowed, according to the CFPB.” [Yahoo Finance, “The Reign of Payday Lenders May Soon Be Over,” 8/13/14]

CFPB: Half of All Borrowers Took Out at Least 10 Sequential Loans.

“Because most borrowers can’t pay the loans off and still have money to cover bills, they borrow again. The Consumer Financial Protection Bureau found four of five payday loans are rolled over or renewed within 14 days, and half of all borrowers took out at least 10 sequential loans.” [Cleveland Plain Dealer, “Can Ohioans Trust the Legislature to Get Payday Reform Right?,” 6/13/14]

CFPB: 60% Of Payday Loans Are Renewed Seven Or More Times in A Row, Typically Adding A 15% Fee for Every Renewal.

“Liberty Bank started offering $500 to $2,500 loans in 2008 as one of 28 bank participants in an FDIC small-loan pilot program. The program encouraged lenders to make short-term, low-dollar loans with a streamlined application process and an annual percentage rate of 36 percent or less. The goal was to offer a more affordable option to payday loans, which typically charge renewal fees when the borrower cannot afford to repay the loan after two weeks. The fee can trap borrowers in a damaging cycle. A March report from the Consumer Financial Protection Bureau found that 60 percent of payday loans are renewed seven or more times in a row, typically adding a 15 percent fee for every renewal.” [Times Picayune, “Can Banks Provide an Alternative to Payday Loans? Local Lenders Aim to Attract ‘Underbanked’,” 5/8/14]

REALITY: Payday Lenders Make Most of Their Profits from Consumers Who Continually Renew Loans, Rather Than Pay Them Off

CFPB: Three Quarters of Loan Fees Came from Borrowers Who Had More Than 10 Payday Loans in A 12 Month Period.

“When unrestrained by regulation, the typical two-week payday loan can be immensely profitable for lenders. The key to that profitability is for borrowers to take out loans over and over. When the CFPB studied a sample of payday loans earlier this year, it found that three-quarters of loan fees came from borrowers who had more than 10 payday loans in a 12-month period.” [Cincinnati Enquirer, 8/11/13]

REALITY: The Payday Loan Industry Has Admitted That They Make More Money from Consumers Who Continually Roll-over Loans

Payday Loan Employee: “We Just Basically Don’t Let Anybody Pay Off.”

“The loans were unconscionable for a reason beyond the extremely high rates, the suits alleged. Employees did everything they could to keep borrowers on the hook. As one FastBucks employee testified, “We just basically don’t let anybody pay off.” [Cincinnati Enquirer, 8/11/13]

Dan Feehan, CEO of Cash America: The Theory of Payday Lending Is “You’ve Got to Get That Customer in, Work to Turn Him into A Repetitive Customer, Long-Term Customer, Because That’s Really Where the Profitability Is.”

Dan Feehan, C.E.O. of Cash America, remarked at a Jeffries Financial Services Conference in 2007, “[T]he theory in the business is [that] you’ve got to get that customer in, work to turn him into a repetitive customer, long-term customer, because that’s really where the profitability is.” [New York Times, “Making Money Off the Poor,” 9/17/13]

Ace Cash Express Paid $10 Million for Illegal Tactics to Pressure Borrowers with Overdue Loans to Borrow More to Pay Them Off and Had a Graphic in Their Training Manual Showing the Cycle of Debt.

“The Consumer Financial Protection Bureau Consumer advocates have long warned that payday lenders purposely try to lure borrowers into an expensive and debilitating cycle of debt. Now, the nation’s consumer financial watchdog says it has proof. The Consumer Financial Protection Bureau accused a leading payday lender, Ace Cash Express, of using a variety of illegal tactics to pressure customers with overdue loans to borrow more to pay them off. The allegations against Ace marked the first time that bureau officials accused a payday lender of intentionally pushing people into a debt cycle. Ace, with 1,500 storefront locations in California and 35 other states, agreed to pay $10 million to settle the case, without admitting or denying wrongdoing. The Irving, Texas, company issued a statement noting that it cooperated with the bureau’s investigation for two years and that nearly all its employees’ calls to customers complied with collection rules. The bureau’s investigation turned up a graphic from an Ace training manual showing the circular loan process — how customers were being contacted to take out new loans after failing to pay off old ones.” [Los Angeles Times, “Payday Lender Will Pay $10 Million to Settle Consumer Bureau’s Claims,” 7/11/14]

Ace’s Collection Calls Were Not Meant to Get Borrowers to Pay Off the Old Debt, But Rather to Browbeat Them into Taking Out a New Loan to Cover the Old One.

“ACE allowed in-house and third-party collectors to harass debtors with repeated calls or threaten them with criminal prosecution or lawsuits it never intended to file. The lender also contacted borrowers’ friends or relatives about their debts. All of those are forbidden debt collection tactics. But the collections calls weren’t meant to get borrowers to pay off the old debt, the bureau said, but rather to browbeat them into taking out a costly new loan to cover the old one.” [Cleveland Plain Dealer, “ACE to Pay $10 Million — Half to Consumers — For Squeezing Delinquent Borrowers,” 7/11/14]

One of Ace’s Training Manuals Contained a Graphic of the Payday Debt Cycle That Creates a False Sense of Urgency to Get the Borrowers to Take Out More Money.

“One of ACE’s 2011 training manuals contained a graphic of the payday cycle in which, after the loan is issued, “the customer exhausts the cash and does not have the ability to repay.” The next step in the cycle shows that Ace contacts the customer to sell a new loan to cover the old balance. If the customer doesn’t respond, the account is sent to collections, which yields yet another loan. ACE leaned on debtors to borrow again even if they said they couldn’t afford new loans, the CFPB said. ACE’s in-house collectors made ominous, false warnings about what awaited consumers if their accounts were turned over to outside debt collectors. ACE warned that consumers would face additional fees or damage to their credit standing if a third-party collector got involved — even though ACE’s contracts with third-party collectors prohibited added fees and reporting of the debts to the three major credit bureaus. One ACE collector warned a consumer that an outside collector’s “actions are unlimited.” The CFPB found that creating a false sense of urgency to get borrowers to take out new loans was itself an abusive practice.” [Cleveland Plain Dealer, “ACE to Pay $10 Million — Half to Consumers — For Squeezing Delinquent Borrowers,” 7/11/14]

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