WASHINGTON, April 4, 2011 /PRNewswire/ -- Financial Service Centers of America (FiSCA), the nation's largest trade association representing alternative financial service providers, today issued the following statement in response to the Center for Responsible Lending's latest study critical of the payday advance industry:
"The CRL study is based on one overriding assumption: that Americans who take out payday advance loans do so without understanding the terms and conditions of the loans; in essence, that they are being duped. Nothing could be farther from the truth. All states that regulate these loan products include significant consumer protection provisions. Customers understand the costs and other conditions of the loan before the loan is finalized. There is complete transparency.
"A few other points are worth making. First, the need for credit in low income communities is acute. Elizabeth Warren, currently organizing the CFPB, said as much in an interview with FiSCA last year.(1) At the same time, banks are either unwilling or unable to provide that type of short term credit. The FDIC's own small dollar pilot program, which ran from 2008 through 2009, was a complete failure because banks could not make a profit at the required 36% rate cap (the same cap that CRL is advocating) even with government incentives. Also they had no interest in cannibalizing customers from their hugely profitable overdraft protection products.(2) The simple fact is that for many consumers, payday advance loans are, in fact, cheaper than bank product alternatives or making late payments on bills.
"It also is important to keep in mind that the interest rate charged on the loan product may sound high, but that is only when the rate is amortized over an entire year, not the two weeks of the typical loan. Lastly, contrary to what CRL and other critics would have legislators and regulators believe, the industry earns a reasonable profit, not an excessive one."
FiSCA, founded in 1987, is the national trade association for more than 6,500 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, small dollar short-term loans, 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.
(1) "A conversation with Elizabeth Warren, Part 2," Currents, March 2009, page 25.
(2) See FiSCA press release "FiSCA Issues Critique of FDIC Small Dollar Loan Program " released on November 16, 2009
SOURCE Financial Service Centers of America