5 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.

50 mins ago

State Sen. Albritton: ‘I don’t think we have the time to sit back and wait’ on prison, gaming

With the fourth year of this quadrennium ahead in 2022, several high-profile key matters remain unresolved.

Historically, the Alabama Legislature has avoided high-profile matters in those years because they are also election years for the body’s members. That’s not an excuse, according to State Sen. Greg Albritton (R-Atmore).

During an interview with Mobile radio FM Talk 106.5’s “The Jeff Poor Show,” Albritton, the chairman of the Senate General Fund Committee, said there was no time to wait on prisons and gaming, two of the matters that continue to remain unresolved in state government.

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“Elections are a part of the process,” he said. “They are the not the process. They are a part of the process. You’ve still got to do your job no matter what comes up — whether it’s COVID, whether you’re broke, whether you got money, or whether there are elections are not. That doesn’t change the issues. That doesn’t change the facts. It doesn’t change the responsibility of moving forward with the things the state has to get done. I don’t think we have the time to sit back and wait on prison matters. I don’t think we have the time to sit back and wait on gaining control of gaming in Alabama.”

“There are several issues like that — yeah, they’re controversial,” Albritton added. “Everything in politics is controversial. We’ve just got to buckle down and do the job we’ve been told to do and that we were brought there to do, and that is pass legislation that will advance the state and advance the people of the state economically. That is what we should  be accomplishing.”

@Jeff_Poor is a graduate of Auburn University and the University of South Alabama, the editor of Breitbart TV, a columnist for Mobile’s Lagniappe Weekly, and host of Mobile’s “The Jeff Poor Show” from 9 a.m.-12 p.m. on FM Talk 106.5.

1 hour ago

UAB Hospital’s longest-tenured COVID-19 patient goes home

Ricky Hamm is no stranger to UAB Hospital. A medevac helicopter pilot, he has been flying ill and injured patients to UAB for 17 years. He was the first medevac pilot to touch down on the landing pad of UAB’s North Pavilion when it opened in 2004. On Jan. 10, 2021, he found himself at the North Pavilion again, but this time as a patient.

COVID-19 patient. It would be 187 days before he would go home.

Hamm is not sure how he contracted the virus. Five co-workers were COVID-19-positive at the same time in January, so he may have picked it up at work.

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“We live in a rural area, and I always wore a mask and kept my distance when going to town,” Hamm said. “A bunch of us went to get the first dose of the Moderna vaccine, but I must have already had the virus.”

Hamm, a veteran who first flew medevac in the Army, began to feel sick Jan. 5. Five days later, he was in UAB Hospital with severe breathing issues. He was not a good candidate for a ventilator, an artificial breathing machine often used with COVID-19 patients. His physicians had to turn to ECMO.

ECMO, or extracorporeal membrane oxygenation, is a device that removes a patient’s blood, filters out the carbon dioxide and adds oxygen. The blood is then pumped back into the body. In effect, the machine takes over the roles of the heart and lungs.

“ECMO is a complicated, complex procedure,” said Dr. Keith Wille, professor in UAB’s Division of Pulmonary and Critical Care Medicine and medical director of the adult ECMO program. “It’s invasive and not much fun for the patient. In this case, it saved his life. But trust me – you do not want to go on ECMO.”

Hamm was on ECMO for 147 days. He has the dubious distinction of being UAB’s longest-tenured COVID-19 patient, at 187 days. He will still be on supplemental oxygen after discharge, and he will use an extra-strength CPAP (continuous positive airway pressure) machine at night for a while to help his breathing. He has suffered profound hearing loss, which his wife, Shannon, a speech pathologist, hopes may resolve over time. His bout with COVID-19 was severe.

“He had a lot of support from family and friends,” said Shannon. “We were not sure how it was going to go at first. He was basically out of it for about four months. Once he woke up and joined the fight, things got a lot better. Then we knew he was going to make it.”

On July 16, Hamm’s family, friends in the emergency medical services community and co-workers celebrated his discharge from UAB, complete with a blue-light escort from Jefferson County and other area sheriff’s departments.

Hamm, speaking to members of the media outside the hospital, offered his support for vaccination.

“I believe in the vaccine,” he said. “I believe I already had the virus before I got the vaccine, before it could work to protect me. I wouldn’t want anyone to go through what I went through.”

Hamm’s wife said they were halfway through construction of a house when Hamm got sick. The contractors have now finished, and Hamm got his first look at the house as the caravan bringing him home from the hospital pulled up.

“We built it to live in the rest of our lives,” he said. “Built ramps and wide doorways. No stairs. It was for when we grew old. I never expected to need handicap access quite this soon.”

Hamm is 50 years old. They did not celebrate his birthday much in 2020 due to the pandemic. They will celebrate this time. He came home from the hospital – after more than seven months – the day before his 51st birthday.

This story originally appeared on the UAB News website.

(Courtesy of Alabama NewsCenter)

3 hours ago

State Rep. Tracy Estes announces reelection campaign

State Rep. Tracy Estes (R-Winfield) has announced his reelection bid to the Alabama House of Representatives, serving District 17.

Estes, a first-term lawmaker, serves on the Education Policy, Public and Homeland Security, and Children and Senior Advocacy Committees.

“Serving my district in Montgomery has proven to be one of the greatest honors in my life,’’ said Estes. “More importantly, serving in this capacity has given me the opportunity to represent the people of Northwest Alabama while giving them a voice in state government. With a second term in office, I am committed to honoring the promise I made the residents of Lamar, Marion and Winston counties on the campaign trail in 2018 – to be hard working, transparent and accessible. Without hesitation, I believe I have honored my word.’’

In the earliest stages of the global coronavirus pandemic, Estes said in a release he was at the forefront in efforts to bring “much-needed federal financial assistance” to House District 17.

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The release cited his work with hospitals in Winfield, Hamilton and Haleyville to secure more than $15 million in financial aid. The first-term lawmaker noted the assistance his office provided to his constituents in obtaining jobless benefits.

Estes helped lead the legislature in the lower chamber to pass Aniah’s Law, which if passed through statewide ballot measure, would expand judicial authority to deny bail to those accused of committing violent crimes. The legislation was spearheaded by State Rep. Chip Brown (R-Hollinger’s Island).

The press release stated that Estes has managed to secure funding for eight highway projects for his district, totaling more than $4 million.

He has been an ardent supporter of public education and has sponsored numerous legislation relating to education since assuming office, earning him recognition from the Alabama Association of School Boards and the School Superintendents of Alabama.

Estes serves as a deacon at Winfield First Baptist Church and sings lead in a Southern gospel quartet.

In closing, Estes offered a direct plea for reelection to voters of House District 17.

“I believe the voters in this district still honor and respect hard work,” said Estes. “I can honestly say I have poured all of my energy into working hard on your behalf over the last few years while also being transparent and accessible to everyone in the district regardless of age, gender, community or economic background. I worked for everyone in this district and have considered it an honor to do so.”

Dylan Smith is a staff writer for Yellowhammer News

5 hours ago

Britt: Border crisis ‘a result of the weakness of the Biden administration’

Republican U.S. Senate candidate Katie Britt appeared Thursday on News Talk 93.1’s “Dan Morris Show,” where she was interviewed by guest host Apryl Marie Fogel.

During the interview, she was asked by Fogel whether some of the recent turmoil overseas and at the border was attributable to the transition in the executive branch.

“There is no doubt that this is a result of the weakness of the Biden administration,” Britt outlined. “You mentioned the border — it is a total disaster. If you look at the number of people coming over the border, both in May and June we hit 20-year highs. President Trump placed policies and enacted policies that showed strength and got the border under control. I mean, the first thing that we need to do is seal and secure the border. If you look at the safety and security of our nation, but also the humanitarian crisis that is occurring there. We are seeing so many drugs being trafficked over the border. They said they are catching over 3,000 pounds a day, but Apryl Marie, what China is sending over in fentanyl to Mexico, to then come over our border, they said could kill every American four times over.”

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“And every bit of this, it’s interesting, when Vice President Harris said, ‘Oh, I’m going go to the border to see what the issue is,’ which obviously took her, how many days did it take her? – How many months? It was absurd. But I thought, ‘You don’t need to go down there to see (the problem), just look in the mirror.’ It’s you, it’s your administration, the Biden administration’s policies. It’s the weakness that you’re showing,” Britt concluded. “We’ve got to put back Trump’s Remain in Mexico policy. We’ve also got to make sure that, as President Trump did, when people came over the border, they knew that they weren’t going to be placed on our welfare system. Those types of policies, that type of strength, that deters people from coming. Same thing in Cuba. Same thing in Israel. I mean, they see weakness in the Biden Administration, and they see that the Democrats are starting to undermine that relationship, and they are taking advantage of it. Make no mistake: this is why we have to have strength in D.C. and in the White House. We must have strength in the Senate, and we must have strength in the House.”

Tim Howe is an owner of Yellowhammer Multimedia

6 hours ago

A new-look Alabama Crimson Tide, the same old Nick Saban

Nick Saban knows you want to know what he thinks. About the prospect of COVID-19 disrupting another college football season. Name, image and likeness rights for college athletes. The revolving door on the transfer portal thanks to the one-time free transfer rule.

Winning a poll-era record seven national championships, six of the past 12, including the 2020 title, has earned the Alabama football coach a bully pulpit. It’s also earned him the right to admit he knows what he doesn’t know.

“I know there’s a lot of interest in a lot of those things,” Saban said Wednesday at SEC Media Days at the Hyatt Regency Wynfrey Hotel. “I almost feel that anything that I say will probably be wrong because there’s no precedent for the consequences that some of the things that we are creating, whether they’re good opportunities, even if they’re good opportunities, there’s no precedent for the consequences that some of these things are going to create, whether they’re good or bad.”

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Alabama Crimson Tide coach Nick Saban talks NIL, vacationing, sustaining success and a past SEC Media Days memory from Alabama NewsCenter on Vimeo.

The more college football changes, the more Saban and Alabama adapt to those changes and keep winning. They went undefeated to capture the 2020 national championship despite COVID disruptions such as Saban himself missing the Iron Bowl because he tested positive for the virus, and two games being rescheduled.

Saban explained how Alabama has handled the subject of vaccinations for the disease with its players heading into this season. He broke it down into “a personal decision” for each player and “a competitive decision” on how that choice could affect the team.

How has that approach worked to date?

“I think that we’re pretty close to 90 percent maybe of our players who have gotten the vaccine,” Saban said, “and I’m hopeful that more players make that decision – but it is their decision.”

Speaking a day earlier at a Texas high school coaching convention, Saban weighed in on the newest phenomenon affecting college athletics, NIL rights. He dropped a nugget that Alabama’s heir apparent at quarterback, sophomore Bryce Young, has earned almost a million dollars in endorsements. Saban didn’t expound on Young’s earning power Wednesday but applauded the opportunity for players to make money.

He also questioned the impact that a disparity in NIL earnings could have on the roster “because it’s not going to be equal, and everything that we’ve done in college athletics in the past has always been equal. Everybody’s had an equal scholarship, equal opportunity.”

“Now that’s probably not going to be the case. Some positions, some players will have more opportunities than others. And how that’s going to impact your team, our team, the players on the team, I really can’t answer because we don’t have any precedent for it.

“I know that we’re doing the best we can to try to get our players to understand the circumstance they’re in, the opportunity they have, and how those opportunities are not going to be equal for everybody, and it will be important for our team’s success that people are not looking over their shoulder at what somebody else does or doesn’t do.”

What Alabama does in trying to compete for another championship without 10 NFL draft picks from last year’s team, six of whom were selected in the first round, including Heisman Trophy winner DeVonta Smith, will reflect the program’s ability to adapt to the new era of college football “free agency.” Tennessee transfer linebacker Henry To’oTo’o, a potential “quarterback-type guy on defense” in Saban’s words, is one of the newcomers expected to make an immediate impact on a team that will start the season in a much different place than last season.

With eight new starters on offense and a new offensive coordinator and play-caller in former NFL head coach Bill O’Brien, the experience this time around is on defense. Just the same, Saban said, after setting school records last season with 48.5 points and 541.6 yards a game, “we’re not changing offenses.”

“We’ve got a good offense,” he said. “We’ve got a good system. We’ve got a good philosophy. Bill has certainly added to that in a positive way, and we’ll probably continue to make some changes. But from a terminology standpoint, from a player standpoint in our building, our offense was very, very productive, and we want to continue to run the same type of offense and feature the players that we have who are playmakers who can make plays, and I think Bill will do a good job of that.”

So as a new season awaits, Saban and Alabama find themselves in a familiar place in a new world, trying to defend a national championship with a new cast of featured players and assistant coaches. Saban called it “the penalty for success.”

“The challenge is you’ve got to rebuild with a lot of new players who will be younger, have new roles, less experience, and how do they respond to these new roles? That’s why rebuilding is a tremendous challenge,” Saban said. “That’s why it’s very difficult to repeat.”

Alabama Crimson Tide coach Nick Saban speaks at SEC Media Days 2021 from Alabama NewsCenter on Vimeo.

Saban, who has won back-to-back national championships just once in 2011 and 2012, is heading into his 15th season at Alabama, his 20th in the SEC, including his five years at LSU. The SEC coach next in line in seniority is Kentucky’s Mark Stoops, who’s entering his ninth year. Eight of the league’s head coaches are in their first or second year.

Someone asked Saban the secret to his longevity.

“I think that’s simple,” he said. “You’ve got to win.”

Mission accomplished. Again and again and again.

(Courtesy of Alabama NewsCenter)