Op Ed
August 3 , 2007

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Payday lenders provide
a valuable service

by Tom Linafelt

The eKC online story about payday lending (www.kcactive.com/news/ekcfeat/ekcfeat
) was a typically one-sided bashfest that failed to include the viewpoints of the industry or its thousands of highly satisfied customers for whom payday loans are oftentimes a godsend.

Before Kansas City and surrounding municipalities move to restrict payday lending, policymakers should understand their constituents’ need for short-term credit and the unintended consequences of such restrictions.

While critics have rushed to label payday lending as “predatory” without ever having defined what “predatory” means — recent studies debunk that myth and underscore the fact that — before restricting or eliminating short-term credit options, public officials should better understand the consumer demand for such products and the unintended consequences any such restrictions might create.

A January 2007 study by the Federal Reserve Bank of New York found not only that payday loans were NOT predatory, but also that by increasing the supply of credit to an underserved market, they actually ENHANCE the welfare of the households they serve. (“Defining and Detecting Predatory Lending,” by Federal Reserve Bank of New York Research Officer Donald P. Morgan: http://www.newyorkfed.org/research/staff_reports/sr273.pdf)

Another study found that further regulation of payday lending has the adverse and unintended consequence of reducing credit options for those who may have few alternatives, and that policymakers should encourage competition in the small loan market, as competition controls prices. (“Payday Lending and Public Policy: What Elected Officials Should Know,” by Tom Lehman, Ph.D., of the Indiana Policy Review Foundation: http://www.inpolicy.org/index.php?option=com_content&task=view&id=211&Itemid=26)

Payday advance companies each year help thousands of Missouri families overcome unexpected financial circumstances.

When an air conditioner breaks or a car battery dies, QC and other responsible lenders provide convenient access to small amounts of money to cover those costs. Banks don’t.

Missouri payday lending laws already include some of the strongest consumer protections in the country. Missouri law currently protects consumers from creating a “cycle of debt” and from experiencing the kinds of annualized percentage rates referenced by industry critics. These laws include limits on loans, loan renewals and associated fees.

These are the kinds of strong consumer protections the payday lending industry consistently supports.

In fact, the payday lending industry’s trade association — the Community Financial Services Association (CFSA) — this year launched a Customer Pledge that includes a $12 million public education and financial literacy campaign and an Extended Payment Plan granting any customer, at any time, for any reason, more time to pay off their loan at no additional cost.

Let’s give reasonable, hard-working Missouri consumers access to a variety of regulated credit options and trust them to make financial decisions based on what’s best for them and their families.

Tom Linafelt is director of Corporate Communications for QC Holdings


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