Front Group For Financial Conglomerate Continues To Unfairly Malign Competitors
WASHINGTON, April 10 /PRNewswire-USNewswire/ -- Yesterday, the Center for Responsible Lending (CRL) issued a misleading press release on short-term payday lending practices that failed to acknowledge the pitfalls of proposed legislation to cap consumer loans at 36%. Reports from researchers at the Federal Reserve of New York, current FDIC chairwoman Sheila Bair, and economists at major universities show that this proposed cap would leave low-income borrowers with fewer and less desirable options when in need of emergency cash.
"Here we go again. The Center for Responsible Lending uses scary voodoo numbers like 400% interest that have no basis in reality to try and score a cheap political point," said Tim Miller, communications director at the Center for Consumer Freedom. "It is intellectually dishonest to call a $15 fee on a $100 loan 400% interest. It is even more brazen to make that claim when the legislation CRL references would make it illegal for borrowers to roll loans over enough times to even approach that percentage. What CRL doesn't tell you is that their own 2007 study shows that short-term payday lenders received 16.4% interest on their loans."
"This shouldn't be surprising from an organization that was founded by subprime lending billionaires who invented so-called "Pick-a-Payment" adjustable rate mortgages. CRL is currently the advocacy arm of a billion-dollar financial network that is a direct competitor of the short-term loan industry, and which charges its customers fees for services that cost more than short-term payday loans."
How CRL Uses Misleading Statistics About Short-Term Payday Loans:
CRL claims that short-term payday loans have 400 percent interest rates. The CRL continues to claim that short-term payday loans carry annualized percentage rates of 400%. The typical fee on a two-week short-term payday loan is $15 for every $100 borrowed, or 15%. A borrower would have to roll their loan over 26 times to actually owe 400% interest, something which would be impossible under federal legislation that CRL hypocritically opposes.
Data in CRL's own report disproves misleading statistic. A report released by CRL exposes the fallacy of 400% interest. In its 2007 report titled "Springing The Debt Trap," CRL said, "in 2005, short-term payday lenders made over $28 billion in loans and collected approximately $4.6 billion in fees from borrowers." Simple math shows that short-term payday lenders' fees totaled 16.4% of the loans they extended, nowhere close to the exaggerated 400% figure CRL repeats elsewhere.
Proposed 36% cap will cut off a critical financial option. The CRL is also mistaken in its claim that consumers will benefit from Illinois Sen. Dick Durbin and California Rep. Jackie Speier's bills to cap short-term payday loans at 36% APR. Such a cap may seem reasonable for a loan of 12 to 36 months. But for short-term loans, a 36% annual cap equals a $1.38 fee on a two-week $100 loan. This is an unsustainable business model that will drive short-term lenders out of business, eliminating a vital financial option for Americans struggling to get by. A staff report from the Federal Reserve Bank of New York found that banning short-term payday loans left borrowers worse off, forced to choose from more expensive options.
CRL Is A Front For Self Help, A Financial Network Of Credit Unions And Lending Groups And A Direct Competitor To Short-Term Payday Lenders:
CRL functions as a front for Self Help, a financial network that charge fees for services that can cost far more than a short-term payday loan. Although the CRL bills itself as a "nonprofit, nonpartisan research and policy organization," the center functions as the lobbying arm of the billion-dollar Self Help financial network. CRL claims that short-term payday lenders charge excessive fees, even though Self Help lenders charge their low-income customers fees for services that can cost far more than a short-term payday loan.
A 2007 New York Federal Reserve staff report found that short-term payday lending was actually better for consumers than large fees charged by groups like Self Help. In November 2007, economists at the Federal Reserve Bank of New York released an analysis of the effect of North Carolina's short-term payday loan ban; their findings show the ban significantly harmed consumers. The research also found that short-term payday loans were a better option for consumers than the expensive overdraft and non-sufficient funds fees charged by banks and credit unions such as Self Help, CRL's primary sponsor.
CRL's founders made billions from subprime lending that contributed to the current economic crisis. CRL's founders and most prominent funders, Herb and Marion Sandler, made their fortune at subprime lender Golden West Financial. The duo pioneered one of the worst types of subprime loans, known as "Pick-a-Payment" or option-ARM loans. The Sandlers pocketed $2.3 billion when they sold their company to Wachovia in 2006. Golden West's toxic loan portfolio collapsed two years later, causing an estimated $36 billion in losses for Wachovia. The U.S. Department of Justice and the Securities and Exchange Commission are currently investigating Golden West Financial for predatory lending and fraudulent representation to investors.
The Center for Consumer Freedom is a nonprofit organization devoted to promoting personal responsibility and protecting consumer choices.
SOURCE Center for Consumer Freedom