2 years ago

Here’s why politicians trying to kill Alabama’s payday loan industry are misguided (opinion)

Payday loan sign (Photo: Flickr)
Payday loan sign (Photo: Flickr)

Payday lending is often portrayed as a manipulative industry only concerned with preying on naïve consumers. Thus, it is no surprise that Alabama policymakers are calling for restrictions against the industry.

Without an understanding of economics and finance, however, well-intended regulators could harm the very payday loan customers they are hoping to help.

It is important to recognize that payday lending meets an important need in the community. According to a survey by Federal Reserve economist Gregory Elliehausen, over 85 percent of payday lending customers reported that they took out a payday loan in order to meet an unexpected expense. While we all face unexpected expenses, the typical payday lending customer finds these circumstances especially difficult since traditional lenders and even close friends and family are often reluctant–or unable–to make unsecured loans to them given their poor credit histories.

While the need for short-term lending often isn’t disputed, reports of Annual Percentage Rates (APR) of several hundred percent often invoke anger and hostility, and provide the impetus for calls to restrict this rate to under 40 percent. But this is an inappropriate portrayal. The typical payday lending loan is under $400, lasts under four weeks (even including consecutive new loans and renewals), with an interest charge under $19 per $100.

Where does the high APR come from, then? For example, let’s assume you take out a $400 loan for two weeks with a total finance charge of $76. That amounts to a nearly 495 percent APR using a common calculation. Basically, the APR is calculated by projecting the interest rate for an entire year! Looking at the APR, however, is extremely misleading because the vast majority of these loans last only two to four weeks. Limiting the APR to 40 percent would mean that a payday lender could only charge $6.14 for a two-week loan of $400.

Would you be willing to lend an unsecured $400 out of your own pocket to a financially risky person for two weeks for only $6? Certainly not! Especially if you consider that, as a payday lender, you would have to pay rent on a building, pay your electricity bill, make payroll, and incur expected losses on unpaid loans.

Even without interest rate restrictions, payday lending isn’t a very lucrative business; a Fordham Journal of Corporate & Finance Law study finds that the typical payday lender makes only a 3.57 percent profit margin. That is fairly low when you consider that the average Starbucks makes a 9 percent profit margin and the average commercial lender makes a 13 percent profit. Interestingly enough, the average bank overdraft charge of $36–an alternative option for payday lending customers–could easily result in an APR of several thousand percent.

In a review of the research on payday lending in the Journal of Economic Perspectives, economist Michael Stegman recommends that policymakers resist implementing legislation restricting the interest rate charged by payday lenders and instead examine ways to help prevent the small number of customers who are caught in a cycle of payday lending debt. This is because the vast majority of payday lending customers pay off their debts and voluntarily agree to the interest rates charged. In fact, Gregory Elliehausen finds that over 88% of payday lending customers were satisfied with their most recent loan from a payday lender. Almost no payday loan customers reported that they felt they had insufficient or unclear information when taking out their loan.

Christy Bronson, a senior economics student at Troy University, conducted a survey to see if these national results held true here in Alabama. The results from her study on payday lending customers in the Wiregrass area corroborated these national results. A full 100 percent of respondents reported being satisfied with their most recent payday loan experience and 78 percent reported being satisfied with their payday loan experiences overall. If most payday lending customers were caught in a vicious debt cycle, you would expect customer satisfaction to be much lower. Survey participants in the Wiregrass area also overwhelmingly indicated that they were satisfied with their knowledge and understanding of the terms and conditions of payday lending. The survey also found that payday lending customers in the Wiregrass area used payday loans moderately and found that the overwhelming majority of payday lending customers do not consider themselves to be in financial difficulty as a result of using payday loans.

There is a logical explanation for these findings. Payday lenders don’t profit from customers who can’t repay their loans. Cycling debt only increases the risk that the payday lender will not get their interest or principal back and will lose out to secured creditors in a bankruptcy. This is why many payday lenders in Alabama came together to form Borrow Smart Alabama, an organization designed to better inform payday lenders and to set a code of ethics and accountability for payday lenders in Alabama.

Running payday lenders out of business with severe interest rate restrictions or costly regulation won’t keep customers in urgent need of cash from borrowing money. We know from experience that banning goods or services that people want doesn’t prevent a black market from emerging. Just look at examples of alcohol, drug, and gun prohibition. Payday lending customers, lacking the credit worthiness required for traditional lines of credit, will only be forced to use less desirable–and more expensive–credit options such as loan sharks, online lending, or overdrawing their bank account or credit card.

Daniel J. Smith is the associate director of the Johnson Center at Troy University. Follow him on Twitter: @smithdanj1. Christy Bronson is a senior economics major at Troy University.

8 hours ago

End the shutdown politics

For far too long, Congress has relied on short term, stop-gap funding bills to keep the federal government open and running — and have done so when up against holidays and midnight deadlines.

Take the most recent continuous resolution: last month, as a member of the House of Representatives, I voted around 5:30 AM on a Friday morning against a massive spending bill that raises America’s deficit next year to about $1 trillion.


Yes, you read that right. While you and your family were sleeping, a handful of your duly-elected representatives were making deals in the middle of the night. For the last 40 years — but increasingly more so in the last decade — this has been and is the way Washington operates. It needs to end now.

Put simply, this is how it works: time is running out as Congress approaches a funding deadline. In exchange for their votes, appropriators demand more money for “insert name of pet project” and the spending bill balloons as more and more wish list items are added. Inevitably, one party demands more or they’ll threaten to walk from the deal.

A small leadership team from both sides then hammer out a deal behind closed doors — with Republicans agreeing to spend even more money America does not have, has to borrow to get, and cannot afford to pay back. This is what Washington did in February with its “debt junkie” spending bill and what it’s poised to do again this week.

Moreover, these last-minute side deals for unrelated, often deemed “must-pass” legislation, have no business being in a continuing resolution and should be voted on as stand-alone bills. But because of threatened government shutdown risks, the bulk of Congress is subject to the spending demands of the powerful few.

The party in power almost always loses in the game of shutdown politics, as it suggests the party does not know how to govern and does not deserve to govern. In the late-night rush to negotiate a deal, the powerbrokers eventually concede, bad policy is enacted, and Congress is pressured to vote for the deal to please some segment of their constituency. It’s a loss on both sides of the aisle.

Perhaps even worse, the country loses — big time — as bills are introduced and voted on before the public has time to digest them and submit their views to their elected officials. Transparency in government becomes nonexistent. And the deficit increases exponentially.

Let’s take a quick look at previous short-term continuous resolutions.

Remember the cromnibus back in 2013? At the time, the last-minute Christmas bill seemed monstrous with the approved $63 billion increase in spending authority over two years. That’s pocket change compared to the McConnell-Schumer Deal that passed last month and busted the discretionary budget spending caps by $296 billion over two years. All this adds up to trillions of dollars, and as a result of the February continuous resolution vote, deficits will blow through the $1 trillion mark annually and indefinitely.

While Congress seems hell-bent on passing unaffordable spending bills and adding trillions to America’s debt, eventually the gravy train is going to an end and become a train wreck because America simply can’t afford these expensive deals.

That’s why last week I introduced H.R. 5313: The End Federal Shutdowns Act. This legislation automatically requires continuity of spending at the previous year’s levels should Congress fail to pass spending bills on time. Hence, government shutdowns become a thing of the past.

The concept is simple: whatever the spending level was for the previous year becomes the spending level for such time as it takes Washington to pass legislation that changes priorities and reallocate different spending amounts. If this legislation were enacted, leadership of both parties would have no choice but to aggressively seek timely regular order agreement and passage of appropriations bills to achieve new funding and policy objectives. A flat-spending alternative would be a strong incentive for constructive compromise involving a majority of representatives.

Providing for an automatic continuous resolution should be the easiest vote most of us in Congress make this year. It provides stability for the federal government and prevents rank and file members from being held hostage to the demands of special interest groups, leadership, and powerful appropriators.

I’m urging my colleagues on both sides of the aisle to come together and do what’s right for the Congress and for the country. A vote for H.R. 5313 is common sense — something that seems to be lacking in Washington these days.

Let’s stop shutdown politics once and for all.

U.S. Rep. Mo Brooks is a Republican from Huntsville

Christy Swaid is a 2018 Yellowhammer Woman of Impact

When pro sports star Christy Swaid first moved to Alabama in 2002, she said she immediately fell in love with her new home, but it broke her heart to learn that the state ranks in the top three nationally for diabetes, high blood pressure, obesity and hypertension and that Alabama children are developing type 2 diabetes at one of the fastest-growing rates in the nation.

Swaid, a 2018 Yellowhammer Woman of Impact, is a six-time world champion professional jet ski racer, the winningest female in the history of the sport, and was twice named “One of the Fittest Women in America” by Competitor Magazine in 2000 and by Muscle and Fitness in 2001.


After years advocating for marine safety, Swaid channeled her extensive fitness experience and passion for service into launching a nonprofit in 2006 named HEAL (healthy eating active living) with a mission to use evidence-based methods and education to “measurably improve children’s health and reverse the growing epidemic of childhood obesity,” according to HEAL’s website.

“My heart and mission is to help children prevent diseases before they get established, but then follow them throughout their school experience with more healthy eating, active living techniques and encouragement,” Swaid said in a January Alabama Public Television interview.

Swaid tested her curriculum-based fitness and nutrition program in a six-month pilot program that measured results in fifth grade PE classrooms at 10 Alabama schools and found promising results among participating children: 75 percent showed improved fitness, 57 percent of overweight and obese children reduced their body mass index (BMI), and all participants reported improvements in healthful eating.

The program has steadily expanded, serving 130 Alabama schools in 27 counties and reaching 27,000 students across multiple grade levels. There are 175 schools on a waiting list pending funding; HEAL raises their own funds to offer the program to schools at no cost.

Last year, four Alabama schools using the HEAL curriculum earned an “America’s Healthiest School Award” from the Alliance for a Healthier Generation, whose judging standards include the healthiness of meals and snacks served, how much students move at school, and the quality of physical and health education.

“I am so proud of our state,” Swaid told APT. “Ten years ago, this was a kitchen table conversation, and I was able to glean the brightest and the best minds who also have big hearts to help put their fingerprints in making the most progressive solution to our nation’s worst epidemic, and that is what HEAL is … a genius cluster.”

Swaid developed her research-based curriculum in partnership with professors from UAB and Samford University.

“It is all science-based and it’s friendly, and it includes every child, including children with special needs,” she said.

Swaid will be honored with Gov. Kay Ivey in an awards event March 29 in Birmingham. The Yellowhammer Women of Impact event will honor 20 women making an impact in Alabama and will benefit Big Oak Ranch. Details and registration may be found here.

Rachel Blackmon Bryars is managing editor of Yellowhammer News.

9 hours ago

Alabama eyes potential economic impact of fatal deer disease

A fatal deer disease is inching closer to Alabama, where whitetail deer are the most popular game animal and hunting generates a $1.8 billion yearly economic impact.

The Montgomery Advertiser reports that a dead buck tested positive for chronic wasting disease in Mississippi’s Issaquena County last month; until then, the closest state to Alabama with the neurological disease was Arkansas.


Chuck Sykes with the Wildlife and Freshwater Fisheries Division says it’s unlikely a diseased deer would wander “over an imaginary line on a map,” but that infected meat or animals could be brought in knowingly or unknowingly. Alabama has banned the import of carcasses from states where CWD has been confirmed.

The department says states with CWD have seen an up to 40 percent decrease in hunting license sales.

(Image: Outdoor Alabama)

(Associated Press, copyright 2018)

10 hours ago

Alabama ranks 4th most federally dependent state

Alabama is the fourth most federally dependent state in the union, according to analysis done by the personal finance website WalletHub.

The details:

Researchers compared the 50 states by examining both the dependency of state governments and of state residents.


To determine state government dependence, researchers looked at federal funding as a share of state revenue in each of the states.

To determine the dependency of residents, researchers used returns on taxes paid to the federal government and each state’s share of federal jobs as metrics.

Alabama’s state government was ranked the thirteenth most federally dependent and Alabama’s residents were ranked fourth most dependent.

New Mexico, Kentucky and Mississippi were ranked the three most federally dependent states.

In January, WalletHub ranked Alabama the tenth most affected state by the federal government shutdown, which was determined by various metrics indicating the state’s dependence upon the federal government.

That analysis examined Alabama’s share of federal jobs and contracts, its access to federal lending programs, and its percentages of children reliant upon the Children’s Health Insurance Program (CHIP).

Click here to read the experts’ analyses.

10 hours ago

Fort Rucker, Maxwell Air Force Base and more recently discussed in House defense appropriations subcommittee hearings

Serving on the House Appropriations Committee gives me a valuable and unique opportunity to participate in the conversations surrounding funding for the various functions of our federal government.

It’s hard to believe it, but the debates on funding for the Fiscal Year 2019 have already begun. I’ve been glad to be part of these important discussions and advocate for programs that are critically important to the State of Alabama and our country as a whole.

Recently the Defense Appropriations Subcommittee, on which I’m grateful to serve, held hearings to review the Fiscal Year 2019 budget requests from various services. So far during this budget request season, our subcommittee has heard from the Navy and the Marine Corps, the Air Force, and the Army.


I was glad to take part in all these discussions for several reasons. I have always been a strong advocate for properly supporting our military so that our men and women in uniform have everything they need when we send them into harm’s way. Secondly, our state and district have a very large military presence, and I consider fighting for our interests one of my greatest responsibilities in Congress.

When the Air Force testified before Defense Appropriations, I was glad to have the opportunity to have a conversation with Secretary of the Air Force Heather Wilson and Chief of Staff General David Goldfein. You may remember that Secretary Wilson was the key decision maker for the F-35 mission. We talked about the Air Force’s priorities for the next year, and I thanked her in person for making the decision to send the F-35 Joint Strike Fighter to the 187th Fighter Wing at Dannelly Field in Montgomery. As I told Secretary Wilson, the men and women of the 187th could not be more thrilled about this extraordinary opportunity, and our entire state and community share in this excitement.

When the Navy and Marine Corps came before the subcommittee to discuss their budget request, I asked Chief of Naval Operations Admiral John Richardson about the F-35 mission’s potential to enable the Navy fleet as a whole to be more capable. I was thrilled when he assured me that yes, this would definitely be the case. In my role on the Appropriations Committee, I will also continue to support the Littoral Combat Ship (LCS) program manufactured in Mobile as well as the other important priorities for our state.

During the Army’s testimony before Defense Appropriations, I reviewed the Army’s budget request with Secretary of the Army Dr. Mark Esper and Chief of Staff General Mark Milley. The people of Southeast Alabama care greatly about the Army, and we are so proud that our very own Fort Rucker is the home of Army Aviation. Unfortunately, the Fiscal Year 2019 budget request for Army Aviation aircraft is significantly reduced from this year, so I pressed Secretary Esper about this. I appreciated his response and his assurance that operations will proceed as usual at Fort Rucker. This news on top of the announcement we recently received that 17 Lakota helicopters will soon be added to the fleet at Fort Rucker are both great indications that this proud military installation in our backyard will continue to excel for years to come. Of course, in my role on the Appropriations Committee, I will continue push for strong Army Aviation funding.

I deeply appreciate these distinguished military leaders for taking the time to review their budgets and priorities with us. Each of these individuals have led lives of dedicated service to our country, and I am grateful to their families for the many sacrifices made on our behalf. I will continue to prioritize the national security of this great nation, and as always, I will never stop advocating for the important work being done in Alabama’s Second District at Maxwell-Gunter Air Force Base and Fort Rucker.

U.S. Rep. Martha Roby is a Republican from Montgomery.