Payday Loans: Campaigners' Lies, Damned Lies, and Statistics

[Apr 23, 2009.]

 

The last Rebuild.org payday loans blog queried a figure quoted in a New York Times editorial. Like all too many statistics bandied around by both sides in the payday loans debate, this number seemed dubious.

Payday Loans Editorial Queried

The NYT piece, entitled 391 Percent Payday Loans, said: "That does not mean an industry that makes $50 billion a year in loans should…"

This blogger was not alone in thinking that this was meant to imply that the payday loans industry made (in profit) $50 billion a year. After all, if one read that, say, the arms industry made $50 billion a year in government contracts, one might reasonably assume that the writer was talking about how much the industry made, not about how much it had invested.

Payday Loans Attack Ambiguous

Yet that is precisely how some who represent lenders read the NYT figure. A spokesperson for the Community Financial Services Association, a payday loans industry body, told this blog: "The NYT said the industry makes $50 billion a year in loans which is true. That’s a number we support based on reporting from the investment firm Stephens Inc. The earnings based on the $50 billion in credit is $6.5 billion."

So maybe it is possible to read the NYT assertion in either of two ways. But why should that be? The paper employs some of the best writers in the world. Why not be unambiguous, and say: "…an industry that lends $50 billion a year," or "…an industry that makes loans totaling $50 billion a year"?

Payday Loans Campaigners Need Figuring Out

If the NYT's preference for ambiguity over clarity is a little strange, then the attitudes to statistics of those on both sides in the great payday loans debate are positively discombobulating. If the argument is about whether or not payday loans are harmful to society, then shouldn't the industry be trying to talk down the size of the 'problem' while consumer groups talk it up?

If so, how come it's the other way around? The CFSA says lending is running at $50 billion a year, while consumer groups cite a much lower amount. Earlier this month, when Ms Jean Ann Fox, who is Director of Consumer Protection at the Consumers Union, gave evidence to a payday loans Congressional hearing, she said that the industry lent "over $28.2 billion" in 2005.

Payday Loans Legislation Defended by Congressman

Back in the pages of the New York Times, Rep. Luis V. Gutierrez, who is chairman of the House Subcommittee on Financial Institutions and Consumer Credit, wrote a letter in response to the Times' editorial, which had criticized the congressman's payday loans reform bill.

Mr. Gutierrez said: "What the editorial doesn’t mention, however, is that in one fell swoop, the Payday Loans Reform Act (H.R. 1214) would lower the annual percentage rate on payday loans for nearly 113 million Americans, ban “rollovers,” create a mandatory repayment plan and establish a federal floor on which stronger state and federal laws can then be built."

He continued: "My bill is not a cure-all for payday lending, but it is a good start to ensuring consumer protections at a time when consumers need them most."

 

About Author:

Peter Andrew has been writing about -- and for -- business for more than two decades. For the last couple of years, he has found himself increasingly specializing in the U.S. financial sector.