A new report has been released by the Center for Responsible Lending, slamming payday loans lenders. Photo Credit: MoneyBlogNewz/Flickr.com/CC-BY

The Center for Responsible Lending has released a new report on payday loans, bashing the product. The CRL is among the chief lobbyists against the payday lending industry, though it allies itself with other consumer credit causes. Payday lending will soon fall under the jurisdiction of the Consumer Financial Protection Bureau.

Payday lenders blasted for lending practices

Payday lending is often reviled as predatory, as opponents accuse payday lenders of trapping people into vicious cycles of debt. One of the leading advocates for reform or eradication of the practice is the Center for Responsible Lending, a consumer advocacy foundation that conducts research and lobbies on behalf of consumers. The organization has released a new report on payday lending, according to Daily Finance, asserting that people who take out payday loans tend to get trapped into debt for more than a single pay period. The report is titled “Payday Loans Inc: Short on Credit, Long on Debt” and is available on the CRL’s website.

Frequent targets

Payday lenders are often targets of increased regulation and of ardent criticism. Some lenders deserve it; the number of violations committed by payday lenders as well as the number of lawsuits including class actions show that not all short term loans lenders are on the level. Many are hoping for payday loans as an industry to get reigned in by the Consumer Financial Protection Bureau when it begins operation later this year, as many advocates have asserted a cap on repeat borrowing will be effective, though the CFPB will not be able to regulate interest rates. The CRL recommends the CFPB should do as much.

Credit involves risks

The scholarly literature that exists on payday loans and similar credit products indicates there is a risk of consumers falling into a fair amount of debt once they begin borrowing from payday lenders. For instance, the CRL report asserts that many people are indebted to a payday lender for one to two years. That’s better than 30 years, the length of the typical mortgage. That is also better than 10 years, the length of time that people are given to repay student loans. However, those debts don’t have the stigma that payday loans have been bestowed with. Credit cards are also seen as more respectable than payday loans even though a minimum payment schedule can keep a person in debt to credit card companies for decades.

Sources

Daily Finance

Center for Responsible Lending (PDF – Requires Adobe Reader)

Sen. Kay Hagan (NC-D) - Have John Paulson and the CRL done anything for YOU lately?

The Center for Responsible Lending recently worked hand-in-hand with North Carolina Senator Kay Hagan (D) to “help craft” the Payday Lending Limitation Act of 2010, reports the Payday Loan Industry Blog. The major purpose of this new bill, it would seem, is to change the parameters of the Truth in Lending Act (TILA). While the specifics of the bill text will not be available to the general public until it is presented to the Senate in the upcoming weeks, it appears that the Payday Lending Limitation Act of 2010 is ostensibly another attempt to blame America’s financial crisis on the payday loans industry. The bill would empower the federal government to replace state-by-state consumer lending regulation with their own highly stringent rules.

Payday Lending Limitation Act of 2010: Another CRL manifesto

The Center for Responsible Lending (CRL) is allegedly responsible for the thrust of the Payday Lending Limitation Act of 2010. For those unfamiliar, the CRL plays consumer advocacy group before the cameras and bright lights, but when it’s time to wipe of the grease paint, their truth hurts. Not only were they founded largely by Herb and Marion Sandler, who made a fortune in the sub-prime mortgage market that was largely responsible for bringing America’s economy to the brink of destruction, but there are other damning ties. Numerous connections exist between the Sandlers, the CRL, Self-Help, Inc. and affiliate Self-Help Credit Union (the latter two founded by Martin Eakes, who is also the chairman of the CRL).

In essence, affirmative action initiatives were used to strong-arm banks into writing adjustable-rate mortgages for people who were unlikely to be able to afford them. At the same time, groups like Goldman Sachs were contributing to the mortgage mess, claiming those sub-prime mortgages were a good investment to fool investors while betting against the success of those investments behind the scenes. And guess what? Hedge fund billionaire John Paulson, who is intimately involved in the recent mortgage investment scandal, was a major financial contributor to Goldman Sachs AND was one of the major founders of the Center for Responsible Lending! How credible are the Center for Responsible Lending’s claims that they want to protect the little man, in light of those heavy connections?

Skip the Payday Lending Limitation Act of 2010, Congress

Instead, investigate the Center for Responsible Lending at the same time that you go after Paulson, Goldman Sachs and everyone else associated with this greedy mortgage investment game. There is at a bare minimum suspicion by association, and there is a documented money trail. Payday lending, when used properly, is a useful venture for short-term consumer funding. Adjustable rate mortgages and unscrupulous investment companies that are betting on deceived investors to fill their coffers have no proper place in a legal, functional economy. Their avarice is a blight, and Sen. Hagan would have been better-served if she’d asked Scrooge McDuck to write the Payday Lending Limitation Act of 2010. He has more heart and care for the common man.

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Overdraft fees and payday loans are being targeted by the Center for Responsible Lending, or CRL. Now that the economy is regrouping after the recession, the CRL is officially doing the numbers. The organization is looking to define the term “bad lending” and bring to light policies and procedures that are financially detrimental to the borrowing public. The group has developed a website that showcases the problems with lending that include everything from subprime mortgages, questionable bank policies, and payday loans.

The CRL provides data

One of the advantages of the CRL website is that consumers can see the official tallies of various sectors and states in terms of lending. For example, the group notes that there were 731,779 total foreclosures in California from the first quarter of 2008 through the third quarter of 2009. That totals up to an increase of 692% since 2006. The startling loss adds up to projections for the near future. The projected future loss in wealth of home value from now until 2012 is estimated to be $627 billion.

What costs the consumer most

The CRL also is targeting the biggest contributors to consumer cost when it comes to bank overdraft fees and payday loans. With bank overdraft fees, there are a lot of criticisms. The fees are a strong driver of bad loan costs. In the past debit cards were considered a cost-effective way of making purchases. Consumers used them to avoid overdraft fees and interest payments that come along with credit card purchases. In recent years, however, debit cards have moved into the area of money drains for consumers who aren’t careful.

In the past if a consumer tried to charge more than they had in their account, the debit card was denied. It was an important safeguard to avoid fees. Today, many large banks are enrolling customers in overdraft programs that allow over-limit charges to go through, but with an added fee. To enroll in the program there is also a monthly charge that eats away at savings. Though the rules are going to change later this year due to the Federal Reserve’s new policies for lenders, as of now about 80% of banks offer the overdraft protection program to their customers.

Payday loans and payday lenders

Payday loans are another area of lending the CRL is concerned with. Though there are some good payday lenders, there are a portion of lenders that fall into the category of predatory lenders according to the CRL. A payday loan is a temporary and short-term loan that consumers look to when they need immediate cash. Those who qualify receive the funds and then write a post-dated check back to the lender. On the date agreed upon, the lender cashes the check and the loan is complete. Studies have shown that many borrowers fall into problems with the loans. For example, if a qualified customer borrows from a payday lender on January 1st, their next paycheck on January 15th is going to pay for the loan. That means that their pay on the 15th is gone. Often times bad budgeting makes it difficult for the consumer to live without their next paycheck and they turn again to the payday lender. They fall into a cycle that is difficult to get out of. The CRL is petitioning for a 36% cap on payday loans although the current average is 400%.

Bad lending in the US

The CRL is pushing for a reassessment of good lending for consumer protection. The reason could be because Congress isn’t pushing the Consumer Financial Protection Agency as hard to revamp lending laws. Though it was a hot topic a few months ago, other priorities have risen to the foreground with legislators. The CRL is hoping to shed light on the problems in banking and payday loans and help to reduce bad lending in the US.