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Consumers
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Consumer Federation of
America |
Consumers Union(1) (CU) and
Consumer Federation of America(2)
(CFA) appreciate the opportunity to comment on the proposed rule to
authorize deferred presentment transactions, 7 TAC §1.605,
published in the Texas Register on March 3, 2000.
Deferred presentment transactions, also known as "payday loans,"
are small cash loans based on personal checks held for deposit,
repayable on the borrower's next pay day (typically a few days up to
a two week term), at rates that translate to triple digit interest
rates on an annual basis. These loans are based on personal checks
held by the lender. When the loan is due, these checks can be
redeemed for cash repayment or deposited to clear through the
bank.
Texas small loan laws already accommodate two of the key features
of payday lending. Current Texas law permits licensed lenders to make
loans with single payments (§342.253, Finance Code). Current law
also permits licensed lenders to charge alternate interest rates that
result in very high rates for small loans (§342.252, Finance
Code). For a $100 loan, the alternate rate is $10 plus $4/month for
each $100 advanced (48 percent).
The proposed rule to authorize deferred presentment transactions
adds the third key element of a payday loan: authority for licensed
lenders to hold the borrower's personal check as collateral for a
consumer loan. As discussed below, this feature of payday lending is
contrary to the public interest and exposes consumers to unacceptable
harm. If Texas does make payday loans legal, regulations must protect
borrowers from coercive tactics made possible by live checks in the
hands of lenders.
Authorizing deferred presentment transactions raises significant
public policy concerns. Adopting rules that will permit short-term,
high-cost loans that are secured by a borrower's personal check has
resulted in problems for consumers across the country. Legalizing
such activity in Texas is unprecedented.
Notwithstanding the public policy concerns regarding authorizing
payday lending in Texas, there are specific problems in proposed
rules that should be addressed before the rules are finally
adopted.
Problems associated with deferred presentment or payday lending
have increased exponentially as payday loan lenders have convinced
legislators to authorize the transactions or have partnered with
banks to move into "usury" states to attempt to avoid state law.
Abuses found in the payday loan industry are inherent to the nature
of the loans themselves.
Payday loans are characterized by three features:
· they are high cost loans made for a short-term;
· they use a borrower's personal check to assure repayment; and, as a result of these factors;
· they often result in a borrower refinancing such loans or paying them off with a loan from another lender.
These features are also the reasons that such loans are inherently abusive:
· high costs make the loans expensive and more difficult to repay;
· the use of a personal check as security is coercive and encourages borrowers to skip other financial obligations;
· as a result there is a strong incentive to renew the loans or to repay them by taking a loan from another lender.
Evidence of the abusive nature of these practices is well
documented. Lenders use a person's personal check to strong-arm
repayment or refinancing. In a survey of lenders in Texas last year,
one lender told our surveyor, "If you don't repay us we will cash
your check. If your check bounces then we will file for a hot
check."(3) Such threats often lead to
borrowers getting behind in their other financial obligations:
I lost my job and called and spoke to [the manager] to see if there was any other way to work this out, and she basically told me tough luck. Because of the $330 I have to pay each month I have constantly stayed behind on my other financial obligations. It is basically a vicious circle. So instead of being able to pay the loan off after 12 paydays (six months) I have had to continue to increase it.(4)
Borrowers report abusive collection practices, such as discussing
the loans with employers.(5) Many
borrowers complained that they got into a cycle of borrowing, unable
to pay off the loans, ". . . it is like a form of slavery because you
can never get to the point of paying them off. . . this loan/lease
has been paid at least two times or more of what was
borrowed."(6)
Payday Loans Find Origins in Usurious Loans of the Past
Payday lending finds its roots in short-term, high-cost loans made
in the past. One such practice, from more than 50 years ago, is the
"salary loan," where a borrower would receive five dollars in
exchange for repaying six at payday. Testimony before a United States
Senate hearing on payday lending provides a thorough discussion of
historical practices that mirror payday lending practices of today.
This discussion is included as Attachment A to these comments.
Texas has taken a conservative stance on lending, and
particularly, high-cost lending. In the Texas Constitution of 1876,
usury provisions were put in place that have remained since. In fact,
during reconstruction, the Constitution of 1869 eliminated all usury
laws and prohibited the Legislature from making new laws that would
limit interest. The repeal of laws limiting interest rates led to a
flood of credit abuses that led to the reenactment of usury limits,
this time in the Constitution, in 1876.
Payday Loan Are Routinely Renewed
A financial analyst covering the payday loan industry reports that
the average user takes out 11 loans per year.(7)
In Wisconsin, one consumer borrowed more than $1,200 from
all five payday lenders in her town and was paying $200 every two
weeks to cover the fees without paying down the
principal.(8) Numerous other press
accounts detail the experiences of consumers with similar stories. In
Texas, one borrower had multiple loans from more than one lender,
making payments on at least eight loans for five
months.(9) In Indiana, a recent
examination of a sample of licensed payday lenders found that, on
average, borrowers made more than 10 loans each, with one borrower
having made 66 such loans in a
year.(10) A recent analysis of data
from Illinois found that only a small portion of payday loan
borrowers were "occasional" borrowers. Eighteen percent of borrowers
had three or fewer such loans, but the average borrower had 12.6.
More than half, 52 percent, had more than 10 and more than one-third
had more than 15. Twenty-one percent had more than 20
loans.(11) These facts demonstrate that
payday loans become a trap for desperate consumers, rather than a
one-time or occasional transaction.
Proposed 7 TAC §1.605 attempts to address some of the abuses
that have plagued the payday loan industry in Texas and other states.
However, it falls short of addressing the primary areas of concern -
high costs, the coercive nature of the loans, and renewals. Making a
minor change to the rules before adoption will address some of these
problems.
The Proposed Minimum Term Will Encourage Renewals, Multiple
Loans
Proposed §1.605(d) sets a minimum term of seven days. Instead
of payday loans being installment loans, they are balloon payment
transactions with the full principal and interest due. §342.253
permits single repayment loans for less than one month but does not
specify loans as short as seven days. While a weekly payment schedule
might help a consumer paid on a weekly basis to successfully repay a
small installment loan, a seven-day term for a single payment payday
loan is not appropriate.
We urge a payday loan term of at least 14 days, to assist
consumers in successfully repaying the loan without the need to
refinance or rollover the loan. The minimum term adopted in Texas
should be increased to at least 14 days or the borrower's next
payday, whichever is longer. The Finance Commission has clear
authority to establish minimum loan terms of 14 days, pursuant to
§342.258, Texas Finance Code. A minimum term that encompasses at
least one payday will improve consumers' chances of avoiding a
perpetual debt trap.
As currently proposed, a minimum term of seven days will encourage
borrowers to refinance and have multiple loans outstanding from a
number of different lenders. For a borrower who is not paid every
week, a seven-day term will necessarily force borrowers to refinance
or take out another loan from a separate lender to pay the loan
back.
Many borrowers are not paid on a weekly basis. Only about half of
workers are paid weekly. Forty-five percent of workers are paid
bi-weekly, semi-monthly, or
monthly.(12) Texas law requires an
employer to pay an exempt employee at least once a month. For
non-exempt employees, the law requires payment to be designated by
employers, at least twice a month, but if they do not make a
designation, the paydays are the first and fifteenth day of each
month.(13) Employees of the State of
Texas are paid only once a month. It is unconscionable to loan money
to consumers who have no expectation of being able to repay under the
terms of the loan. A seven-day term for a payday loan is per se
unconscionable.
Short payday loan terms have caused problems in other
jurisdictions. In Indiana, regulators found, of the 47 licensees
examined, 38 had used loan terms of seven days or
fewer.(14) In fact, borrowers having
multiple loans taken out from numerous lenders is a problem in other
states. Even as regulators attempt to limit the number of renewals a
borrower makes, it is very difficult to monitor whether a borrower
already has loans outstanding from other lenders. In a survey of
credit counselors in California, Washington, Nevada, Oregon, Idaho
and Montana, 50 borrowers answered questions about payday loan use,
family income, and collection practices. Half of the respondents had
taken out 9 or more payday loans in the last year and 40% borrowed
from five or more payday
lenders.(15)
Since a large number of borrowers are not paid on a weekly basis,
a lender choosing to set a term shorter than the borrower's next
paycheck will create a hardship for borrowers. A repayment cycle
shorter than the borrower's pay cycle will necessarily force the
borrower to renew or take out a separate loan from another lender to
repay the original loan. This will require a borrower to incur new
costs, making it more difficult to finally repay the loan. For
borrowers who have a difficult time repaying such
loans,(16) the additional costs will
make it that much more difficult to close the transaction and will
encourage borrowers to renew loans or take out additional loans.
Short Term Pushes Interest Rates to Unconscionable Levels
The minimum term proposed in §1.605(d) has another equally
troubling effect - it raises effective interest rates for the
shortest loans to unconscionable levels that are unprecedented in
Texas.
According to Exhibit A to proposed §1.605, interest rates for
a $100 loan with a seven-day term are 570.10 percent. For the same
term, loans of $150 and $200 charge interest of 396.29 percent and
309.38 percent, respectively. Such rates are outside of the scope of
interest rates charged in the state. Though Texas statute approves a
$10 fee in addition to the 48 percent interest charge, it is unlikely
the legislature considered the effect of the combination of these two
fees for very short-term loans. For other short-term loans, like pawn
loans, interest rates of up to about 240 percent are permitted under
law. Increasing the minimum term to 14 days results in a much more
reasonable effective interest rate that does not grossly exceed rates
charged for other short-term loans.
The alternate interest charge provision in Texas law appears to
have been intended to apply to installment loans, not single-payment
loans, since an "installment account handling charge" is provided.
One solution to the extreme cost of payday loans as contemplated by
these proposed rules would be to prohibit collection of the $10
acquisition charge more than once a year. If that were adopted, a
payday loan borrower would pay $10 to open the account plus 48%
interest for the initial loan and no more than 48% interest for
subsequent loans, renewals or roll-overs.
That price structure would track what happens when a payday loan
is issued. As described in the 1998 S-1 filing of Check Into Cash at
the Securities and Exchange Commission, new borrowers on their first
visit to this large chain of lenders are asked to provide extensive
personal information, including a valid driver's license or other
acceptable form of identification, a copy of his most recent bank
statement, and his most recent payroll stub or proof of income. The
Check Into Cash customer also completes an information statement,
supplying demographic, employment and other contact information
including addresses and phone numbers. The customer is screened
through Tele-Track, a credit reporting database, to verify
reliability. On the other hand, repeat customers are required only to
tender a check and execute a new agreement without being
re-approved.
The interest rates that result from the proposed rate structure
are not justified by default rates. An investment analysis reported
that the industry's losses have stabilized at 1.0 to 1.3 percent of
receivables, comparable to bank default
rates.(17) Colorado reports that
charge-offs are in the three percent range. Check Into Cash reported
to the SEC that bad debt as a percentage of revenue ranged from 3 to
5% over the years. Losses on payday loans are very similar to losses
for credit cards while the difference in APRs is far greater. The
most expensive credit card rate identified in Consumer Action's 1999
national credit card survey was 25.24% APR that Associates National
Bank reserves for credit-impaired customers. Under Texas' proposed
rules that same "credit impaired" customer could be charged 570%.
Risk is also reduced by the collection leverage conferred by the
check. As Stephens Inc., a Little Rock investment firm, reports,
payday loans get paid first. In a recent update, Stephens noted that
other lenders, such as low-balance credit card issuers, small loan
finance companies, and pawn shops will be at risk of becoming
subordinated to the payday advance companies in terms of payment
priority.(18) If these loans "get paid
first," then the risk is lower for a payday loan than for a
traditional signature loan.
Change Rule to Minimize Impact of Loan Rollovers
The proposed rule contemplates that, after one consecutive
renewal, the loan converts to a declining balance installment note
§1.605(f)(3). Given the very high number of loan rollovers in
other states, it is essential that the proposed rules do everything
possible to limit loan renewals. The larger the permitted loan, the
less likely a borrower can repay in full on the next payday.
Increasing loan terms from seven to 14 days or the borrower's next
payday, whichever is longer, is one change that will minimize loan
renewals. However, §1.605(f)(3) should also be changed so that a
loan converts to a declining balance installment note when the loan
is renewed the first time. This change will prevent consumers from
incurring additional interest expense and will more quickly move a
borrower toward repayment and termination of the loan.
Authorizing deferred presentment transactions, also known as
payday loans, in Texas is unprecedented and raises significant public
policy concerns. Adopting rules that will permit short-term,
high-cost loans that are secured by a borrower's personal check has
resulted in abuses against consumers in other states. The proposed
rules present specific problems that should be addressed before the
rules are finally adopted.
First, we urge a change in §1.605(d) to read as follows:
(d) Minimum and maximum term. A licensee may not engage in a deferred presentment transaction with a term of less than [7] 14 days or the borrower's next payday, whichever is longer, or more than one month.
For the reasons discussed in detail above, this will ease
repayment for many borrowers and allow them to avoid refinancing the
loans and it will lower effective interest rates from the excessive
levels that are generated by the shorter term.
Second, we urge a change to §1.605(c) to read as follows:
(c) Maximum charge. A licensee may not charge an amount in excess of the rates authorized in Texas Finance Code, §342.253. Provided, however, that the installment account handling charge may be charged no more than one time per calendar year. The chart in Exhibit 1 provides examples of the maximum authorized rates for loans made under this section.
For reasons discussed in detail above, this will lower costs for
consumers and reflect requirements of the finance code in applying
the installment loan authorized charges to a single payment loan.
Finally, we urge a change in §1.605(f)(3) to read as follows:
(3) Renewals. Prior to refinancing any loan the lender must make a good faith effort to assess the consumer's ability to repay the refinance loan under the new loan terms or risk the loan being determined to be unconscionable and unenforceable. A reasonable analysis of ability to repay may include, but not be limited to, reviewing credit reports, income verification, bank account statements, and a budget analysis or financial statement of all income and obligations such as rent or mortgage, utilities, groceries, gas, and outstanding loans including payday loans, credit cards, and other installment debt. All material reviewed must be current and the lender's records must document that the information was collected and a reasonable analysis made. Although a consumer may once have had the ability to pay the original loan, a refinance request requires a new review and evaluation of the consumer's financial situation. [After one consecutive renewal, i] In order to renew the account [again], the lender must convert the loan from a single payment balloon loan to a declining balance installment note.
Again, for the reasons cited above, this change will minimize
renewals of these expensive loans and assure borrowers more quickly
repay and terminate the loans.
We appreciate the opportunity to submit comments regarding
proposed 28 TAC §1.605. We believe the changes we propose are
essential to minimize the types of abuses against payday loan
borrowers well-documented in other states that have authorized the
practice.
Excerpt from Testimony of Jean Ann Fox, Consumer Federation of
America, before the Forum on Payday Lending, Senator Joseph I.
Lieberman, December 15, 1999.
The emergence of payday lending in the 1990's is not a new story.
The debate about the ethics, economics, and the socio-economic
consequences of this kind of lending was held in the first half of
the century. The prior wave of salary-lending triggered an earlier
reform movement which took place over roughly 50 years between the
late 1800s and World War II.
Salary-lending grew up in the late 19th century, as more
households began to rely on wages and as the level of those wages was
increased enough to give people some margin of income over the bare
necessities from which debts could be repaid. As one observer noted
fifty years ago, the business of salary-buying thrived upon higher
wages and rising standards of living, not upon "abject
poverty."(19) "Midget loans" were
advanced in anticipation of the next payday. Terms were short - a
week, two weeks, or a month - and the price tag was steep. The "5 for
6 boys" lent $5, to be repaid by $6 in one or two weeks, a 522% APR
for two weeks. One 1941 study reported effective APRs on low-end,
short-term loans ranging from 279% to
559%.(20) (In a survey of payday
lenders last year, CFA member groups found rates ranging from 261% to
625% APR.(21) ) The form of these early
loans varied. "Salary buyers" would "buy" the next wage packet at a
discount, for example advancing $22.50 on January 15 in exchange for
the "sale" of the $25 paycheck due January 28, an effective 311% APR.
Other lenders took wage assignments, chattel mortgages on household
goods, or unsecured notes(22).
There is another direct antecedent of today's post-dated check
loan. One of the collection techniques of some early salary lenders
was to have the borrower sign a bank check in the amount of the
principal and interest, though those borrowers had no bank accounts.
The lender explained the check as "security." In the event of
default, the lender deposited the check, which, of course, bounced.
The lender then threatened criminal prosecution as a collection
tactic.(23) This use of criminal
prosecution for bad checks is a problem in this second wave of salary
lender, discussed later in this testimony.
Then, as now, the real distress created by midget loans with giant
price tags came with renewals (often encouraged by the lender, as
therein lies the profitability), and the related problem of trying to
juggle the debt, "borrowing from Peter to pay
Paul."(24) Compare these stories:
· One borrower, making $35 a week, borrowed a total $83 from four different lenders as a result of family sickness. To service that $83 loan, he paid those four lenders $16 per month. At the end of the year, he had paid $192 in interest, but still owed the $83.
· A mill employee, with a $25 a week salary, borrowed a total of $55 from four different loan companies. After paying $69.40 in interest for a year, he still owed the original $55.
· After borrowing $150, and paying $1000 in fees for 6 months, a Kentucky borrower still owes the $150.
· Paying $1,364 in fees over 15 months, another consumer only reduced the principal balance on $400 loan to $248.
The first two borrowers' experiences are from 1939 studies; the
second two are reported in CFA's 1998
study.(25)
As the prior reform movement recognized, it is too simplistic to
answer the policy issues with a mantra that this is a matter of
personal choice. With the experience of many years of salary lending
behind them, the first wave of reformers knew that such "choices"
have consequences on entire families and the larger
community.(26) Complaints to regulators
today indicate that renewals and the Peter to Paul phenomenon may
result in monthly debt service of $500 to $600 on midget loans. Given
the average annual household income of around $25,000 for the current
payday loan customer reported in some independent surveys, this kind
of debt burden for what is typically consumption debt (as opposed to
investment debt, or asset-building debt), obviously will have a major
impact on households, as well as on other economic players in the
community.(27)
The effort to "combat the loan-sharks" began at the dawn of this
century, and over the next four decades was anchored to a large
extent around the Russell Sage Foundation's deliberative, broad-based
studies and efforts. The result was the Uniform Small Loan Act,
crafted and re-crafted, widely adopted by states, which gave rise to
the commercial small loan or finance company
industry.(28) From the description, it
appears that then, as now, there was a discrepancy between what the
economic theorists posited would be the result, and the real world
consequences that the reformers actually saw. The economic theorists
argued that legal restrictions were inappropriate: without them,
supply, demand, and competition would assure equity and pricing in
accordance with risks and costs.(29)
But then, as now, theory and reality are two different things. That
theory ignores the fact that opportunistic pricing can and does occur
in market sectors where there are imperfect market conditions. And
small loans were - and still are - "an excellent example of imperfect
competition." The borrower's need, the lender's advertising, unequal
bargaining position, misleading representations concerning the real
costs for fear of "sticker shock," the absence of meaningful choice
are as real today as they were at the beginning of the
century.(30)
America is facing the second wave of salary-lending in a
century.(31) Salary-lenders' "midget
loans" were the catalyst for states to adopt small loan laws and, as
a result, these loans were outlawed. Not surprisingly, on the heels
of financial deregulation in the latter half of the century, the same
abuses have resurfaced. Once again, effective regulations and
consumer protections are the answer.
________
Footnotes:
(1) Consumers Union is a nonprofit membership
organization chartered in 1936 under the laws of the state of New
York to provide consumers with information, education, and counsel
about goods, services, health, and personal finance; and to initiate
and cooperate with individual and group efforts to maintain and
enhance the quality of life for consumers. Consumers Union's income
is solely derived from the sale of Consumer Reports, its other
publications and from noncommercial contributions, grants and fees.
In addition to reports on Consumers Union's own product testing,
Consumer Reports, with approximately 4.6 million paid circulation,
regularly carries articles on health, product safety, marketplace
economics, and legislative, judicial, and regulatory actions which
affect consumer welfare. Consumers Union's publications carry no
advertising and receive no commercial support.
(2) Consumer Federation of America is a
proconsumer association of about 260 organizations that represent 50
million consumers. CFA was founded in 1966 to advocate for
consumers.
(3) Cardella, Ruth, "Wolf in Sheep's Clothing,"
p. 6, February 1999, comment of employee of Public Leasing of
Dallas.
(4) Id. at p. 3.
(5) Id. at p. 5.
(6) Id. at p. 4, complaint of Skyline Leasing
customer.
(7) M. Anderson, "Cash poor, Choice rich,"
Sacramento Business Journal (Jan. 11, 1999).
(8) David Horst, "Hard Lesson Learned in
Borrowing on Paycheck," The Post-Crescent (Jan. 4, 1998).
(9) "Wolf in Sheep's Clothing," p. 3.
(10) Indiana Department of Financial
Institutions, Summary of Payday Lender Examinations. Indiana
Regulator's Survey of most recent 12 months prior to examination
dates 7/99 - 10/99.
(11) Wiles, M. and Immergluck, D., Unregulated
Payday Lending Pulls Vulnerable Consumers Into Spiraling Debt,
Woodstock Institute Reinvestment Alert, Number 14, March, 2000, p.
3.
(12) Lois Plunkert, Bureau of Labor
Statistics/Current Employment Data Statistics Unit, data from the end
of 1997 shows 54 percent of workers are paid weekly, 28 percent
bi-weekly, 11percent semi-monthly, and six percent monthly.
(13) §§61.011, 61.012, TEX. LABOR
CODE.
(14) Indiana Department of Financial
Institutions, Summary of Payday Lender Examinations. Indiana
Regulator's Survey of most recent 12 months prior to examination
dates 7/99 - 10/99.
(15) Testimony of Jean Ann Fox before the Forum
on Payday Lending, Senator Joseph I. Lieberman, December 15,
1999.
(16) The recent Woodstock Institute report
found that the typical payday loan borrower is a low- to
moderate-income person with a median annual income of $23,690. Only
12 percent of borrowers earned $40,000 or more annually. Unregulated
Payday Lending Pulls Vulnerable Consumers Into Spiraling Debt, p.
6.
(17) Id. at p. 7, citing Robinson, J.L. and
Lewis, G.L., The Developing Payday Advance Business: The Next
Innings: From Emergence to Development, Stephens Inc., 1999. The
Stephens Inc. analysis states that "losses have stabilized at 1.0% to
1.3% of the receivables" at p. 10. In addition, the report cites net
return on investment levels of 23.8 percent.
(18) Gerald Lewis, "Non-bank Financial Services
Industry Notes," Stephens Inc., March 23, 2000, p. 7.
(19) Rolf Nugent, The Loan Shark Problem 3, 4,
8 Law and Contemporary Social Problems (1941). The article was part
of a series published collectively in a symposium entitled Combating
the Loan Shark in that issue. The historical information in these
comments is taken from this symposium, referred to as 1941
Symposium.
(20) William Hays Simpson, Cost of Loans to
Borrowers Under Unregulated Lending, 73, 74-75 1941 Symposium.
(21) "The Growth of Legal Loan-Sharking: A
Report on the Payday Loan Industry," (Consumer Federation of America,
November, 1998, Appendix.)
(22) See Jackson R. Collins, Evasions and
Avoidance of Usury Laws, 54, 55, 58: Nugent, p. 5 (1941 Symposium.)
Threats of garnishment and confession of judgments also facilitated
collection.
A later reform movement curtailed the use of
these devices, after the abusive use of them and their consequences
became apparent. States had prohibited or curtailed them by the
1960s. A series of hearings was held around the country by the
Federal Trade Commission in the mid-1970s in which problems with
these and other overreaching contract terms were documented. Based on
that record, the use of such terms in consumer credit contracts was
curtailed at the federal level by the FTC Credit Practices Rules, 16
C.F.R. 444. Garnishment abuses, and the negative impact on whole
families resulting from garnishment, was addressed both by state
legislation and by the federal garnishment act, 15 U.S.C. § 1671
et seq., and the Fair Debt Collection Practices Act, 15 U.S.C. §
1692.
(23) Joe B. Birkhead, Collection Tactics of
Illegal Lenders, Symposium, 78, 86. A salary lender in Kansas City
used this system. One of the earliest reports of the modern payday
lenders using the post-dated check scheme to try to evade usury and
credit disclosure laws came from Kansas City. "Postdated check firms
may violate usury laws," Kansas City Star, p. 1A (October 23, 1988.)
See also George Gisler, Organization of Public Opinion for Effective
Measures Against Loan Sharks, 183, 187-194 (1941 Symposium) for a
discussion of the Missouri reform effort.
(24) See, e.g. Nugent, p. 5 (1941
Symposium)
(25) Simpson, p. 74-75 (1941 Symposium); "The
Growth of Legal Loan Sharking: A Report on the Payday Loan Industry,"
p. 6 (Consumer Federation of America, November, 1998.)
(26) Nugent, 13; Robert W. Kelso, Social and
Economic Background of the Small Loan Problem, 14, 15 (1941
Symposium). See also Charles S. Kelly, Legal Techniques for Combating
Loan Sharks, 88, 89-91 (1941 Symposium.)
(27) Consumers Union analyzed occupations
disclosed in 1741 letters sent by California payday loan borrowers in
opposition to SB 834. Using the Major Occupation Groups of the Bureau
of Labor Statistics, CU computed the average income of payday loan
customers. For the 83.35% of payday loan patrons who participate in
the paid labor market, the average annual income was $25,416.97. The
1999 Illinois Department of Financial Institutions study of Short
Term Loans found payday loan customers had an average income of
$25,131.
(28) The first draft appeared in 1916, the
seventh draft was revised in 1942. Though not without problems, that
largely served the credit needs of the small borrower until the '80s,
when the siren call of higher-margin, deregulated, home-equity
secured loans lured much of the finance company sector upstream. In
the meantime, the explosion of credit cards supplied and expanded the
short-term, small sum credit market.
(29) Nugent, 12.
(30) For discussion of why and how certain
segments of the consumer credit marketplace remain today a good
example of an "imperfect market," see generally National Consumer Law
Center, The Cost of Credit: Regulation and Legal Challenges, §
11.1 (1995).
(31) Courts uniformly hold that payday loans
are loans. Turner v. E-Z Check Cashing, Inc., 35 F. Supp. 2d 1042
(M.D. Tenn. 1999); Burden v. York, Civil Action No. 98-268 (E.D. Ky.,
Sept. 29, 1999); Hamilton v. HLT Check Exchange, 987 F. Supp. 953
(E.D. Ky. 1997); White v. Check Holders, Inc. 996 S.W.2d 496 (Ky.
1999); Commonwealth v. Allstate Express Check Cashing, No. HD-44-1
(Cir. Ct. Richmond, Va., Oct. 20, 1993).
