The Checkout

Please Act Responsibly Most of the Time

Coming to a screen near you: The payday lending industry asks you not to borrow so much money from them.

The industry's lead trade group, a.k.a. the Community Financial Services Association of America, yesterday debuted a $10 million national advertising campaign to better educate consumers about when--and when not--to take out a payday loan.

In the ad: Images of average Joes and Janes going about their daily lives flash across the screen. CFSA president Darrin Andersen says: "We want you to always to use payday advances responsibly. Payday advances are never designed to be a long-term financial solution. It is one way to deal with unplanned short-term expenses. Please borrow only what you feel comfortable paying back when its due."

What led to this somewhat bizarre ad? Officials in several states are considering new restrictions on payday lenders. The industry is trying to head them off with its own attempt at self-regulation. In addition to the ads, CFSA members promise to give strapped customers the chance at least once a year to extend their loans at no extra cost as sort of an escape hatch from debt.

Consumer groups, not surprisingly, don't think much of this, since they don't think payday loans are ever a good idea for consumers. And because they contend the industry relies on repeat borrowers--people who take out five or more payday loans a year--a one-time get-out-of-jail card isn't going to do many payday lending customers much good.

Being a superficial child of television, I'm more fascinated by the ad. It's analogous to Captain Morgan telling you to "drink responsibly," while showing average people not-so-secretly harboring fresh memories of wild, rum-filled hi-jinks as they go about their humdrum daily lives.

(A true equivalent would show people spending their payday loan fixing their transmission or paying their gas bill--but that's more depressing than the image of a boy with a broken arm in a hospital room.)

The message is still the same, though: You can use our product and not get hurt, but if you do get in trouble, dear consumer, it's on you, and not on us.

In other words: "Don't say we didn't try to warn you."

When I talked to Andersen about the campaign yesterday, he explained the industry is just trying to clear up a little misunderstanding.

"Some of our customers didn't understand the intent of our product. It's not a long-term financial solution," he said. "There is a right time and a wrong time to use our product."

He may have a point there. But you've got to wonder whether his industry would be as profitable if people made the right decisions all the time. In that sense, payday lenders are a lot like credit card companies and banks. If consumers were always without sin--i.e., paid off their balance every month, never overdrew their account, walked the extra two blocks in blinding snow to use their bank's ATM, etc.--they'd have to find another way to boost profits besides through fees.

Fancy that.

By Annys Shin |  February 22, 2007; 10:30 AM ET Credit Issues
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Predatory lenders should be hanged, I think. I know, I know, "non-debtor" and the others will be here soon enough to tell us how much smarter they are than people who fall for these schemes, but I don't think they appreciate how hard it may be for someone struggling to keep the bills paid to resist the lure that lenders dangle in front of them.

Predatory lenders victimize the weakest in our society, and I can't think of much that is lower than that.

Posted by: SteveG | February 22, 2007 11:18 AM

I'm a good libertarian and much of the government regulation that goes on drives me nuts. But this is an area that I'm willing to be a hypocrite on. Having some government restrictions bother me. I think these companies have pushed the ethical boundary so far, that there needs to be some push back on the.

Payday loan companies are no different than loan sharks. My brother-in-law briefly worked for one. He told me stories about people who borrowed $100 and because of the rapacious interest quickly owed the loan service over $1000. That's reprehensible. Yes, I agree, people need to be responsible for their actions. If they borrow money they need to pay it back. But they shouldn't be crippled financially in the process.

Posted by: Tom | February 22, 2007 11:20 AM

This should read "Having some government restrictions doesn't bother me."

Posted by: Tom | February 22, 2007 11:23 AM

Are people who use payday loans regularly adults? Adults without any diagnosed mental retardation? Than what else do they not understand about payday loans? The industry is predatory, but no one is forced to use it. Adults making bad choices should face consequenses of their bad choices. Especially after being warned repeatedly. No one is perfect, everyone makes mistakes, and there are unexpected expenses for which not everyone has discipline to save money in advance. Personally, I use a credit card for such unexpected expenses and then try to pay it off as soon as I can, which means I do pay interest to Mastercard for a month or two, but it's nearly not as much as interest on a payday loan. Unless you are a child or a mentally disabled adult, you should be responsible for the decisions you make.

Posted by: Elle | February 22, 2007 11:26 AM

These payday loans are primarily targeted towards people who for whatever reason can't get a regular loan to pay expenses like high heating bills or for costly prescriptions. On the one hand regulation may be a good thing, as long as it does not shut these people out of being able to get funds that they need to sustain themselves sometimes. People who work minimum wage jobs and take care of families sometimes get into situations where, unfortunately, they may need this.

Posted by: Zen | February 22, 2007 11:31 AM

These payday loans are primarily targeted towards people who for whatever reason can't get a regular loan to pay expenses like high heating bills or for costly prescriptions. On the one hand regulation may be a good thing, as long as it does not shut these people out of being able to get funds that they need to sustain themselves sometimes. People who work minimum wage jobs and take care of families sometimes get into situations where, unfortunately, they may need this.

Posted by: Zen | February 22, 2007 11:32 AM

These payday loans are primarily targeted towards people who for whatever reason can't get a regular loan to pay expenses like high heating bills or for costly prescriptions. On the one hand regulation may be a good thing, as long as it does not shut these people out of being able to get funds that they need to sustain themselves sometimes. People who work minimum wage jobs and take care of families sometimes get into situations where, unfortunately, they may need this.

Posted by: Zen | February 22, 2007 11:33 AM

And where/when will these ads run? Being cynical, I imagine they'll be directed at the law makers, and not at the people who actually use their 'services.'

Posted by: Ollabelle | February 22, 2007 11:35 AM

And where/when will these ads run? Being cynical, I imagine they'll be directed at the law makers, and not at the people who actually use their 'services.'

Posted by: Ollabelle | February 22, 2007 11:37 AM

Thanks Elle, I knew it wouldn't take long.

The fact is, these lenders target people in dire straits and lend them money at extortionate interest rates. They do it because they can get away with it--no laws stopping them and no competition willing to lend money at more reasonable rates to people who don't fit their credit criteria.

Which also means people borrow because they have no other way to meet unexpected costs or even normal expenses.

I'm sure you're quite pleased with yourself for being so much smarter than poor people who don't have the kind of options you do. But the fact you overlook is, they DON'T have the options you do. They are struggling to get through a month on a low wage and something as relatively minor as a broken-down car or a leaky pipe needing a plumber can be a major crisis.

Posted by: SteveG | February 22, 2007 11:39 AM

SteveG, yes, you might say I am pleased with myself. I took out a student loan and got a college degree and have a semi-good job now. I am not rich by any means, and a leaky pipe or broken-down car IS a financial crisis for me. However, I made several choices in my life that allow me to deal with such crisis in a better way than going to a payday loan place. Anyone, even illegal immigrants without SSN can get a credit card these days. Granted, these credit cards probably have very high rates on them, but I'm sure they beat whatever payday loan can offer.
I would have been more sympathetic, if I didn't see everyday how people with very modest financial means make poor financial decisions--like eating out every day at McDonalds or some other fast food place (how can they afford it -- I can't!), when brownbagging a sandwich would be soooo much cheaper; or buying expensive frozen or canned foods instead of cooking meals, or buying expensive snack foods that no one needs for survival like potato chips or soda, I see poor people buying this crap and using their food stamps to pay for it! I am pretty sure that the problem with payday loans is not that people use it for real crisis situations, like medical expenses. The problem is that people are using it irresponsibly as a crutch on a regular basis. Again -- how can they afford it? If they think they can -- let them do it. May be people need more education showing them just how expensive payday loans are, or how expensive it is to eat out or buy prepared foods. Payday loan places must be required to fully disclose costs of their loans so that someone taking out $100 loan is fully aware that s/he will have to pay back $1000. If they are willing to do it -- who are you or I telling them they can't?

Posted by: Elle | February 22, 2007 12:34 PM

Elle, you're making serious judgment calls about people you know nothing about. --I sugguest you read Nickel and Dimed by Barbara Ehrenreich, which chronicles her stint as a worker on minimum wage. --In it she describes, living in a crappy motel room with no kitchenette because she doesn't have enough money to put down first and last months rent. This forces her to eat out for all of her meals because she has no way to cook or refrigerate food. It's more expensive this way, but she doesn't have any other options. For her, a crisis can be as small as getting a bad stain on her only pair of khakis--the khakis she is required to wear to work. And she's not alone.

Posted by: mizbinkley | February 22, 2007 12:55 PM

Elle, may your life be such that you never need to make a "bad" choice.

Posted by: Jayne | February 22, 2007 12:58 PM

I saw one of those ads last night or this morning and was sort of chuckling about it because, yeah, who are they trying to fool here?

Posted by: Cindy C. | February 22, 2007 1:21 PM

I really enjoy how any issue raised on this blog immediately creates 2 separate camps of smug, self-satisfied jack-asses who think they have the only morally acceptable position on the subject. This time 'round, it's the "People who use credit are dumb"-sters versus the "the big, mean system forces poor people into a cycle of economic servitude"-ites. As usual, I suspect the answer lies somewhere in the middle.

Yes, I'm willing to accept that certain, low-wage workers have trouble living paycheck-to-paycheck, and that the occasional unanticipated incurred cost does create an economic crisis. But, until I see some tangible data on what payday loans are actually being used for (which I seriously doubt exist and probably can't ever be tracked with any certainty), I'm not willing to believe that all, or even a high percentage, are for "high heating bills or for costly prescriptions". I'm guessing that, in most cases, it's more likely a case of someone living paycheck-to-paycheck who doesn't have the means to pay for the unexpected repairs on the sporty crap-car they're already paying too much per month for, or who didn't expect the cellphone bill to that high because they forgot how many minutes over their plan they went last month, or something like that.

As you can imagine, it's pretty difficult to muster much sympathy for such folks, and, quite frankly, trying to characterize them as "the weakest in our society" does a disservice to people who truly need to be protected. On the other hand, the business practices in question are morally reprehensible, and I have no problem holding these a-holes to the current usuary laws, and am completely unswayed by their argument of "if we can't charge high rates, we can't stay in business." Then tough luck, Simon Legree, get out of the business.

Posted by: Shades of Grey | February 22, 2007 1:44 PM

Thanks, Jayne! But, as I said -- no one is perfect and everyone makes bad decisions or is put in bad circumstances by things they can't control. However, I live in an apartment complex where there are a lot of families on public assistance. They recieve housing vouchers to live in the same apartment that I live, which has refrigirators, stoves etc, however they still buy junk food using their food stamps or eat out. And some of them don't even work, so it's not that they don't have time to cook. And here is the main problem: because there are so many people who are simply lazy and are parasites, people who truly are in need of help don't get what they need, because resources are streched too thin. There are many resources in place for poor people to avoid going to payday lenders: temporary cash assistance, housing vouchers, medicare, help paying utility bills, daycare vouchers, free health insurance for children, SSI, welfare and the like. These resources are very important for a healthy community and must be avaiable. However, the problem is that so many people who use these resourses do not understand that most of these are meant to be temporary solutions until they are able to get back on their feet. There are so many people who overuse and misuse these things, that these resources are streched too thin, and there is less support from political point of view. There are many bitter lower-middle class families who work hard, do not qualify for any assistance, yet live the same lifestyle or worse than those on public assistance. For example, my neighbor's kids are being picked up and dropped-off by a nice daycare van, kids go to a nice daycare center which I cannot afford for my child, and they whole family has better healthcare coverage than my family. When I and other lower-middle class families see things like that, it shakes our views on what public assistance should be provided.
Anyway, what exactly is the point of sarcastic comments here? Poor people need not to be responsible? Don't you think it's actually patronizing and insulting to assume that all poor people neet that much babysitting that they can't undterstand just how bad payday lenders are and that they should be used only in the direst of circumstances?

Posted by: Elle | February 22, 2007 1:46 PM

Payday loans are the closest things to legalized robbery I know of. This industry makes the credit card industry look like a group of Santas. Poor or desperate people are sucked into taking out loans they will never be able to repay, and then are charged the monthly payment forever or till they default for lack of a paycheck.

Posted by: AK | February 23, 2007 1:06 PM

I wonder if Elle has ever actually tried to get one of those numerous public assistance programs she speaks of as being out there to help all of these poor people? I am a successful attorney who can afford pretty much what I want for myself and my family. But I did the get stupid thing, get married, have some kids, and have no skills and no meaningful employment (I don't mean to imply that getting married and having kids was stupid-still married, love my kids). But here's the deal, when I was down on my luck, partially of my own doing, and decided to pull myself up and make something of my life, let me tell you how many of these programs were out there to help me. Not a damn one!

Did I meet the federal poverty guidelines (which are already a joke-you try supporting a family of four on $19K in DC), hell yes I did.

Was I leach on society, well if holding down a full time job, attending school full-time to finish my BA and then even go on to get a JD is being a leach on society, then yes.

Did my wife work too-oh yes, although we had to work so many odd hour shifts and not see each other for over three solid years because we couldn't afford child care, and hey where was that program to help us...a joke that's what is was.

Food stamps-hah, you have to be poorer than poor to qualify.

Cash assistance-I truly think this is now a myth, I mean I saw the forms that said it existed, but no one actually gets it. The amount of hoops you have to jump through is utterly amazing.

Help paying utility bills-well, we got that one, they were very nice and chipped in about $60...which covered the heat for about 3 weeks of an entire winter since natural gas prices continued to spike, spike, spike during that time period. So it was help, but giving somebody 3 weeks heat is hardly going to set them free.

Housing vouchers...much like the cash assistance this is more of myth. They do exist, but try finding a landlord outside of the most crime infested ghettos that will actually take one. If you find him, let Annys know so she can write an article.

SSI-Um...I wasn't disabled. And do you know what the industry joke is for this, dead without a death certificate. As a lawyer, I've read the case law on this. SSI will pretty much deny you benefits unless you are on death's freakin' doorstep.

Welfare...old fashioned welfare doesn't exist. Hasn't since the Personal Responsibility and Reconciliation Act of 1996(or something close to that-Republicans are great at thinking up cute names for bills that actually screw people).

Free health insurance for children-well this is one of the few that works pretty well, but it really varies as to what state you're in. In some states, like PA, they've realized that its a lot better to get kids quality health care for free or low prices for poor parents, and there's really no excuse for an uninsured kid in that state if you make $50K or less. Go to a lot of other states though, the really poor can get it, the working poor can't. We got it, and it was great knowing my kids had quality health care. Now, how about all those poor working adults, heaven forbid we help them out with some health care as well, because unlike the kids, you have to be destitute poor to get it as an adult. So my kids had health care for that 3 1/2 years, but my wife and I just had to pray we didn't get really sick.

You forgot the best one though Elle-the Earned Income Tax Cut. This was the one gov't program that actually helped us out, and its one of the most successful programs to stem poverty in this country ever. Clinton expanded it even though the GOP wanted to kill it. The EITC basically says, you're poor, but you're not a leach on society. It usually worked out to be an extra $4K in our pockets every year, which was HUGE money for us.

Elle-I think you intentions are good. It bugs me to see someone use their food stamps to buy potato chips and choco-fizzies just as much as it does you. But a big part of that is a lack of education as to what constitutes healthy eating for a lot of low income people. As someone who lived this for over 3 years, I think your personal experience is pretty limited, and you're speaking in generalities gleaned from the local news versus what's actually happening out there on the ground. Waste and fraud probably account for less that 5% percent of the public assistance budget in this country.

The reality is, its more popular to give a tax cut to say 0.2% of the wealthiest people in this country (i.e. the estate tax) by convincing regular people that it could affect them (not unless you hit the powerball buddy), than increase the public assistance budget by 1 or 2%.

These people, and their stress, their lack of education and basic budgeting skills, and just the notion that someone is waiving money in front of them when they have a heating bill due or need to buy another transit pass to get to their low wage job-these are the people that payday lenders count on to keep them in business.

Posted by: Josh | February 23, 2007 1:29 PM

Wanted to jump in here now that comments are back up:

Elle, keep in mind that your neighbors *may* have disabilities, either physical or mental, that prevent them from holding meaningful employment. There's also cultural considerations (like women not allowed to work outside the home). You are viewing the world through one lens: yours. Not that that's wrong. But it limits one's ability to see underlying circumstances sometimes.

As for your suggestions about alternative sources of assistance, the list is great. But you gotta keep in mind the red tape on any one of those things can be enough to drive even highly educated folks batty. Additionally, waiting time can be long. Then there's the high possibility that folks who could benefit from these things don't because the forms to fill out require college level literacy, or the supporting documents are ones they cannot provide for whatever reason. Some of it is shame. Payday lenders are not Big Brother to some of these people. The loans, while undesirable, do not come with years of monitoring and intrusions into their life like public assistance does.

You've said you got a college degree. Regardless of your income level, you still have life skills that allow you to have choices. I don't know. This whole issue is just sad, but I'm of the mind that no one has the answer. Life isn't black and white. Its complex and messy, and answers to societal problems often are too.

Posted by: CyanSquirrel | February 23, 2007 3:36 PM

SSI is not for disabled people on their deathbed. Its for people whose assets are below a certain level and who have disabilities that prevent them from engaging in substantial work. Blindness is one, and being blind does not mean one is on their deathbed.

Another nit picky correction: EITC stands for earned income tax CREDIT, not cut.

Other than that, you've lived it and there's nothing more convincing that someone whose been there telling ya those programs are not the panacea some folks might believe them to be.

Posted by: CyanSquirrel | February 23, 2007 11:11 PM

Another insane series of comments...Payday loans are VOLUNTARY! No one forces a borrower to borrow. Self-discipline and thrift are workable substitutes. And do-gooders: If you ban/over-regulate payday lenders, there will be less money available to lend to those in need. I suggest to all commentators here the following: If you think payday loan rates are too high, go into the business yourself and charge what you think is a fair rate to your borrowers...a real public service!...and let's see how long you stay in business..

Posted by: Dorothy from Columbus | February 25, 2007 2:41 AM

Dorothy, no one forces a borrower to borrow in an absolute sense, that's true.

It also isn't especially relevant. There are people, whether you choose to see it or not, who realistically speaking do not have any other options.

Some of us think the lending industry should be regulated such that they can't victimize people with limited choices. What is "insane" about that?

You self-righteous people who come into these threads to preach about how much smarter you are than other people who simply must be completely to blame for their circumstances really baffle me.

Posted by: MartinCrane | February 26, 2007 10:56 AM

I have been seeing the ads come out lately on CNBC - all through the middle of the day and right before and after Mad Money! Who are these crooks trying to fool? Why else would CFSA put ads on CNBC of all places except to try to show regulators that they are "attempting" to self-regulate? I would bet that 99.9% of their customers don't watch CNBC - why would they? - they have no money to invest! This industry is a complete sham and takes advantage of the have-nots.

Posted by: Bob | March 6, 2007 12:40 PM

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