Fair Debate Over Payday Loans in Iowa

Payday loans in hot debate

Recently, there was a lively League of Women Voters-sponsored spirited debate about payday loans in Webster City, Iowa. It was a refreshing change from the usual talking head-type potshots that critics of the industry typically take. Time was given for both sides to make their case. Critics, led by Victor Elias of The Child and Family Police Center, focused upon limiting the annual percentage rate to 36 percent. Jeff Kursman of Check ‘n Go argued that this cap would be harmful. Andy Hallman of the Daily Freeman-Journal reports.

There are problems with Elias’s argument from the start, in that he cites Iowa’s 36 percent APR on car title loans. He asks for the same rate for fast payday loans, even though the two products are not equivalent. Then he claims that it’s too easy to get a payday loan, which leads to too many situations where people cannot repay. Recent studies that show that 90 percent of borrowers pay on time cast doubt on Elias’s claim, however.

Your rebuttal, Mr. Kursman

Kursman tackles the easy issue first, that APR is not appropriate in the payday loan discussion, as they are not annual loans. He then points out how much more consumers would spend by relying upon an equivalent alternative to short-term loans, checking overdraft.

“We do not push people into debt. What business would intentionally push people into a cycle of debt? It defies every business model,” says Kursman. Then he states his company’s requirements for loan applicants:

We do not make loans for more than 25 percent of that borrower’s net income. Our customers are employed and have a regular income. Our average customer makes $45,000 a year. We don’t do a formal credit check on our customers. That means that one-third of the people who either don’t have a credit rating or have a bad credit rating can get a loan from us. Also, if they can’t pay us on time, we have no legal recourse against them by virtue of state law. We can’t do anything to affect their credit rating.

The bankruptcy link?

Many critics, Mr. Elias included, make the all too convenient connection between payday loans and bankruptcy. However, there is no direct connection, and academic studies have proven this. Kursman addresses a number of such studies:

If you look at studies from the University of Chicago, Clemson, Dartmouth and Columbia, you’ll see that they’ve concluded that bankruptcy actually goes up when people are prevented from using our product. There are 19 million Americans that use our product in a year. If you take us away, you’re leaving them with more expensive alternatives. That’s not consumer choice.

Elias evades the bankruptcy issue entirely, clearly conceding the point. Instead, he counters with the claim that quick payday loan companies have garnished the wages of those who haven’t repaid their obligation. Kursman points out that companies like his are prohibited by law from doing so, and that issue went no further.

Winner? Loser?

Kursman appeared to come out ahead on points, but the reality is that this discussion about payday loans was not a boxing match. However, Mr. Elias appeared to argue himself and his cause into a box on numerous occasions, despite the fact that he was given ample time by the moderators to make his side’s point. Not only that, both parties were asked whether they’d said all they wanted to say before closing. You won’t see a friendly debate like that on Sean Hannity’s show, well, ever. No matter how much he “lets freedom ring” for his listeners and viewers.