Media Responses
UCLA’s response to the Salt Lake Tribune’s Editorial Applauding the banning of Consumer Choice in Salt Lake County
To the Tribune Editorial Board
Your editorial “Limiting lending: SLC should curb number of payday lenders” is once again, long on opinion and short on the facts. First and foremost, your characterization of the cash advance industry is incorrect at its very core. We do not “attract the poor who don’t do business with banks and may not have the financial know-how to understand or resist their tempting offers.” You can not get a payday loan in the State of Utah unless you have a job and a checking account. Companies are not in business to lose money, so they don’t loan money to people who don’t have the ability to pay it back.
Your claim that people end up owing hefty amounts is also flawed. In the State of Utah payday lenders are highly regulated as you noted in your editorial and any customer who takes out a loan from a payday lender can not be charged interest after 12 weeks and many payday lenders in Utah stop charging interest after ten weeks. This is due to strong competition in Utah among cash advance lenders and you are endorsing a policy that will limit payday lending competition in an already highly regulated market.
If you knew anything about the industry, you would have endorsed more competition. Payday customers are notorious for calling shop after shop and comparing rates. All day long the stores take calls from potential customers shopping rates among the lenders in Utah. This again defies your believe system that these are people who don’t have the financial savvy to know what they are doing. Our customers know exactly what they are doing and because of the competition in Utah some cash advance lenders are actually charging a daily rate instead of an often more expensive flat fee. In fact, due to competition, at one of the larger Utah pay day companies a customer can obtain a $100 pay day loan, pay it off within 4 days and pay under $5. The APR on such a loan is still over 300%, but that is an annualized rate that under the law cannot ever be earned with the 12 week interest cap. Again, even if the original loan is rolled over, that can only be done for a total of 12 weeks of earned interest. After that time, by law there must be a cool down of at least a day before another interest bearing loan can be offered.
You rightly acknowledge that “credit card companies and banks are allowed to raise fees, interest charges and penalties with “hardly a by-your-leave,” and “that payday lenders may not be the worst predators on the block,” but you also endorse a policy that forbids competition, the very thing that is serving Utahns well. Consumer can and do shop payday lenders and the companies with the best policies and practices are winning as are their consumers.
Just a few facts you might want to know. It is true that cash advance lenders must disclose an APR (Annual Percentage Rate) for their loans, but these loans are for two weeks, not one year. We like the fact that the State of Utah required us to post the APR and orally state it on every loan, because we believe it makes consumers think before they act.
If there existed a problem with cash advance lenders within the state of Utah there would be more complaints filed with the Department of Financial Institutions, the body charged with overseeing the industry. Each cash advance lender is required to conspicuously post in their lobby the telephone number to the Utah Department of Financial Institutions so customers can file complaints. We are unaware of any other industry required to conspicuously post the telephone number of its regulatory agency for consumer complains. In spite of these signs, the state receives less than 25 complaints a year. A remarkable number when you consider the hundreds of thousands of cash advance transaction that take place each year in Utah.
We are consistently amazed at the notion we lend to poor people with no knowledge of banking or financial dealings. We are lending to people who have jobs and bank accounts and may need a small amount to tide them over or small business people whose customers can’t pay them and they need to pay their employees. They don’t go to traditional banks or pile up credit card debt because they are smart enough to know if something goes wrong not only will their credit rating will be impacted, but late fees and escalating percentage rates to their credit cards will be applied and that’s worse than taking out a payday loan. It should be noted that a recent study conducted by a member of the Economics Department at East Carolina University confirmed that the median interest rate of overdraft protection loans from credit unions and other depository institutions are 20 times more than those of cash advance loans! Consumers know which short-term loan product is a better choice.
You might also be interested to know that most cash advance lenders (UCLA members) have work out plans for customers who find they are having difficulty paying off their loans. We work with our customer’s everyday and customer service is an important aspect of our business. Our typical customer might take loans on and off for a period of one year and then they solve their financial issues and move on. Our rotating customer base is not constant, but transitory in nature. It’s not an easy business, if it were other people in the financial services sector would be offering our products.
We would encourage you and other journalists to do your homework on CRL (Center for Responsible Lending). The self-appointed community activists here in Utah and around the country quote facts and figures from them incessantly. We would encourage you to go to their web site www.responsiblelending.org and to dig deep into their background. This organization, headed by Martin Eakes, is the only research source upon which the community activists are standing. It is also the only source we are aware of that is against payday lending and all research is provided by them through them. Rarely does their research emanate from other institutions. We also would encourage you to look at the attached articles from Forbes and CNN which shows a different side to CRL and its intended mission.
Donald Morgan, Office of Research at the New York Federal Reserve Bank, in his latest report concluded after an exhaustive study that under the pay day lending ban in North Carolina and Georgia, “overall, Chapter 7 filing rates increased… 8.5 percent” and “On average, the Federal Reserve check processing center in Atlanta returned 1.2 million more checks per year after the ban. At $30 per item, depositors paid an extra $36 million per year in bounced check fees after the ban.”
Cash advance lending is not an easy business. These are high-risk unsecured loans. The Utah Legislature has consistently and rightly continued to regulate our practices. We have worked with them to increase regulations year after year. We employ thousands of people in the state of Utah. We provide good salaries and benefits to our employees and we are tax paying citizens.
If we begin to ban competition in any business sector it only raises the cost to the consumer. In our case it may drive consumers to less regulated and certainly more dangerous options such as internet lenders or more expensive options such as bounced check fees and/or escalating credit card debt. Or as the New York Federal Reserve study points out, raising the amount of Chapter 7 bankruptcies in a state that already has one of the highest bankruptcy ratings in the country. We do not see the newspaper calling for banks or credit unions to limit the number of branches because bounced check fees and ATM charges continue to rise. We don’t see the newspaper calling for a ban on Starbucks even though almost every financial counselor uses Starbucks as an example of how people can save money, “just don’t buy Starbucks.”
In difficult financial times with unemployment on the rise, housing prices moving lower, gas prices through the roof and inflation on the rise, we would like to ask The Salt Lake Tribune who will provide short term unsecured credit in our community? Will it be the community through its taxpayers? Will it be churches and not-for-profits that take up the difficult task of providing short term unsecured credit to the members of our community who need it? If banks and credit unions were able to provide this type of credit wouldn’t they be doing it already?
Perhaps the banks and credit unions would provide pay day loans if there were no payday lenders. Some banks do provide pay day advance loans but they are predicated on the fact that there employers directly deposit their pay checks into their banking accounts. Our regulations require that we service payday loans as a loan therefore we must provide an APR, but some credit unions around the country in states where pay day lending has been banned are taking up the call. Their loans require a fee to join the credit union, a fee to originate the loan and then a slightly lower interest rate, all of which adds up to the same $15 per $100 currently available on a national level among most payday lenders. Again, competition is what drives our business and shouldn’t other financial institutions come under the same regulations when providing the same service?
The issue of short term unsecured credit is an important social issue and should be understood by the influential portals of public information, such as The Salt Lake Tribune. Therefore, we would like the opportunity to come and speak with your editorial board about this issue and the role of cash advance lending in providing access to this type of credit. We have requested a meeting several times and have been turned down. We will look forward to an invitation to meet with the Salt Lake Tribune Editorial Board at your earliest convenience.
