Intent to Confuse

The typical payday loan borrower is indebted for more than half of the year.

July 18, 2011

I tend to get suspicious when the name of a trade association doesn’t accurately describe who it represents. When I see American Dental Association, I get it. It’s clear what that association is all about and who it represents.

But what about the Community Financial Services Association of America (CFSA)? It sounds noble. I like the idea of providing financial services to communities.

But you might be surprised to discover CFSA represents payday lenders. I have no idea why it isn’t called the Payday Lenders Association. I have some hunches, but I wasn’t there in 1999 when they decided on the name.

CFSA’s website is sprinkled with phrases like “responsible lending,” “commitment to fairness,” and “empowerment of consumers.” Those are honorable phrases that any financial institution would be proud to have in its mission statement. But payday lenders? Really?

There’s a serious disconnect between those phrases and payday lenders’ track record. That might be why there’s a serious disconnect between the name of the trade association and who it represents.

CFSA’s website says it’s “dedicated to advancing financial empowerment for consumers through small-dollar, short-term loans.” But research from the Center for Responsible Lending (CRL) reveals these loans are far from short-term.

CRL’s latest report—Payday Loans Inc.—found the typical payday loan borrower is indebted for more than half of the year, even though each payday loan typically must be repaid within two weeks.

CRL’s research also shows that people who continue to take out payday loans over a two-year period tend to increase the frequency and the extent of their debt. Among these borrowers, 44% fail to repay their loans and experience a default.

But before we rush to judgment, we must do a little soul-searching: “Do payday lenders’ sins of commission in any way point to credit unions’ sins of omission?”

The credit unions we highlight in this issue compete head-on with payday lenders by offering superior short-term loan solutions.