FiSCA press release blasts CRL study critical of payday loan industry
December 4, 2006 - Hackensack, New Jersey
The Financial Service Centers of America (FiSCA) today strongly criticized a recent report, titled "Financial Quicksand," issued by the Center for Responsible Lending (CRL) which attacked the payday loan industry. The report completely misrepresents the business practices of the industry, fails to address the high costs to consumers of the limited available alternatives and dismisses the financial sophistication of the people who use these products responsibly to manage their affairs.
Today, millions of Americans do not use traditional financial institutions to obtain credit, either because they don't want it or because they are not qualified. However, they, like all Americans, deserve access to basic financial services, including short-term loans. Alternative financial service providers, such as payday loan companies, satisfy an important, and growing, need which banks, credit unions and other institutions cannot or do not satisfy.
One of the main points of the report is that payday loan operators rely on "rollovers," in which consumers take out a second loan to pay off the first, for a large part of their business. Yet, as a matter of fact, 22 of the 38 states and Washington, D.C. that permit payday loans prohibit rollovers. Of the remaining states, the majority limit rollovers to three or fewer. Limits on rollovers are one of the many consumer protections that exist.
The report also fails to acknowledge that the absence of supply in no way impacts demand. Consumers in states without a regulated payday loan industry still have need for such short-term credit and must seek out and use other, often more costly and typically unregulated alternatives, such as Internet- based payday loan companies. These alternatives frequently do not include safeguards and consumer protections.
"While being highly critical of one particular industry, the CRL completely failed to discuss the even higher costs associated with alternatives," explained Henry F. Shyne, Executive Director of FiSCA. "Bounced check fees, overdraft protection fees and late bill payment fees can all exceed the cost of the average payday loan from a licensed operator. Yet, nowhere in the CRL report is there any mention of how and what traditional financial institutions charge their customers for short-term credit options. The report also completely discounts the money management capabilities of these customers. As a matter of fact, consumers who use payday loans are financially savvy individuals, and they know payday loans can be a cost- effective option."
So-called "experts" often counsel borrowing money from either a family member or employer as being preferable to taking out a payday loan. However, the fact is that, according to a recent national customer satisfaction survey, consumers prefer taking out such loans from financial service providers (32%) to their family (17%), banks (13%) or their employers (1%). The national survey was conducted by Dr. Patricia Cirillo, Ph.D. of Cypress Research Group, a nationally-respected firm. Dr. Cirillo is widely acknowledged as a leading researcher in the financial services industry with extensive experience in the study of consumer behavior among the customers of alternative financial service providers.
"The survey paints a very positive picture about the industry and the consumers who use it," continued Shyne. "It completely debunks the myth which self-described 'consumer advocates' such as CRL continue to perpetuate about our customers and our industry. These groups that claim to represent consumers need a reality check. They need to recognize the reality that alternative financial service providers are offering a valuable service at a reasonable price which consumers understand and appreciate."
FiSCA, founded in 1986, is the national trade association for more than 6,000 individual financial service centers across the United States. FiSCA members provide a wide variety of financial services and products to their communities, including check cashing, money orders, money transfers, and electronic bill payment services, automatic teller machine access, government benefit and payroll payments, payday advances, electronic tax preparation, prepaid debit cards, deposit acceptance services, public transportation fare and token sales, motor vehicle license plate and title distribution, postage stamp sales and numerous other services. For more information, please visit www.fisca.org.
Yahoo! Finance, FiSCA, Press Release Writer
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