LMeyers's blog

by Lawrence Meyers

One of the favorite claims of payday lending opponents is that payday loans are “usurious”. We often see this claim made by the ignorant, though well-meaning, members of various “Interfaith Coalitions”. The religious groups just love to band together to attack the moneychangers, as if we were somehow still ensconced in Biblical times.

Well, it’s the 21st century now, folks. Time to clue in. Payday loans aren’t usury, whether you define it with a standard secular dictionary or even pull from Scripture.

Here’s the definition of usury from a random Google search:

“An exorbitant or unlawful rate of interest”

Let’s take “unlawful” first. States that permit payday loans also specify the maximum allowable fee and/or interest by statute. As long as a payday lender makes a loan within those amounts, the loans are lawful and therefore not usurious. And, as it happens, legitimate payday lenders, which comprise of 99% of the industry, follow those exact laws.

Let’s define “exhorbitant”, per the same dictionary, as “greatly exceeding bounds of reason or moderation”.

We must ask what “reasonable” means in the world of short-term unsecured credit.

If a lender charges a price he deems reasonable that the borrower thinks is unreasonable, the borrower will not take out the loan. After all, if lenders charged 2600% APR, or $100 per hundred borrowed, they would not get any customers. It’s called “pricing oneself out of the market”.

If the borrower wants a price he deems reasonable that the lender thinks is unreasonable, the lender will not make the loan. After all, if lenders charged 36% APR, or $1.38 per hundred borrowed, they would get many customers….but the lenders would go out of business within a month because they would not generate enough revenue to make up for overhead and defaults.

So we know that 2600% is too high and 36% is too low. So what is “reasonable”?

An Open Letter to Brent Larkin, Opinion Editor:

Dear Mr. Larkin:

It astonishes me the extent to which the editorial board of a newspaper will not only press its agenda, but continue to press it long after its validity has been debunked.

I refer to the endless parade of editorials denouncing payday loans. Over and over again they appear on your pages, often penned by Thomas Suddes, whose racist rhetoric and wholesale ignorance of both facts and basic logic have made these articles a laughingstock.

Yet here we are again, on June 10, and I find yet another tiresome screed directed at payday lenders -- this time expressing outrage at this industry's right to take the payday loan issue to the people. Imagine that! How awful that the people should be given a voice regarding the availability of a product that was torn from them without consent.

Before I lambaste your ill-conceived jihad against legitimate sources of short-term credit, I need to correct your latest editorial as well as gut it of outright falsehoods. But following that, I issue a challenge to you. I hope you'll stay tuned.

Payday lenders have not "leeched grotesque profits" from anyone. These transactions are entered into by mutual informed consent, where the borrower is told the cost of credit as well as its terms. You also perpetuate this preposterous argument as to what constitutes "grotesque profits" without defining it. Is it grotesque because you disagree with the product? In that case, where are your editorials decrying fast food restaurants and liquor stores -- all of which cause profoundly more damage than payday loans ever could? Is it grotesque because of the absolute dollars made, or because of net profit margins? Then where are the stream of editorials criticizing half of the S&P 500?

Your position is both inconsistent and in this case poorly defined, Mr. Larkin.

By Lawrence Meyers

The recent short-sighted, politically expedient events in Ohio have ironically presented payday lenders with a potential to forever silence its opponents. It is critical, however, that they take the next five months to strategize how best to take advantage of the opportunity handed to them.

First, it’s instructive to review what the de facto banning of payday loans in Ohio offered to Americans interested in truly understanding how credit, politics, and capitalism intersect.

We’ve known for some time that payday loan opponents have received a lot of media support for their ill-conceived crusade. After all, it’s a better story for opponents to trot out an old woman with a walker, who got herself into a “cycle of debt” (often self-admitted), and decry payday loans than it is to show how countless people have been helped by the product.

The opponents have also managed to enlist a great deal of support from newspaper editorial boards. Their authors jump on the bandwagon, either because they 1) were paid to do so, 2) are too blinded by their own ideology, or 3) are just too intellectually lazy to understand the truth about payday loans.

We’ve learned that even law school professors need education about payday loans. We’ve certainly learned the ideologues have no interest in facts, and that they also desperately need to learn basic logic. These misfits would do better to find work in a circus than be given space on an editorial page, especially when they spew racist rhetoric like Thomas Suddes does.