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.

11 hours ago

Alabama’s Jessica Taylor launches NextGen Conservatives PAC to help Republicans retake U.S. House in 2022

Jessica Taylor on Tuesday officially launched “NextGen Conservatives PAC” in an effort to elect the next generation of conservative leaders to important offices across the United States.

Taylor, a native of the Yellowhammer State, ran for the U.S. House of Representatives in Alabama’s Second Congressional District this past cycle, narrowly missing out on making the GOP primary runoff.

During that bid — her first time running for office — Taylor made national news when she co-founded the “Conservative Squad” to go toe-to-toe with the likes of Rep. Alexandria Ocasio-Cortez (D-NY) and her “Socialist Squad.”

A release on Tuesday outlined that as a freshman candidate, Taylor “realized the necessity of strength by numbers to combat the threat the far left poses to the very threads of our democracy.”

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Her latest political action committee is designed to act further on this realization.

“After jumping into the political arena as a congressional candidate and co-founding the Conservative Squad, my campaign message grew into my mission – to elect a new generation of conservative leaders to office across America,” stated Taylor.

“NextGen Conservatives PAC will provide a voice and a platform for younger generations to learn about and embrace the conservative ideals that founded this country and continue to make it the greatest country in the world,” she continued. “We will support and amplify the voices of the next generation of conservative leaders and support them in their efforts to become elected leaders.”

The PAC’s website says the vision of NextGen Conservatives is: “To ensure a free and prosperous United States of America through new conservative leadership.”

Tuesday’s released advised, “The 2020 cycle was a resounding success for conservative women and the next generation of Republican leaders with every flipped seat in the House of Representatives going to a woman, minority, or veteran. NextGen Conservatives is capitalizing on that same momentum to ensure a conservative majority in the U.S. House in 2022.”

Candidates endorsed by NextGen Conservatives PAC will reportedly receive a direct financial contribution, fundraising support and additional support from the group’s independent expenditure arm. “Endorsed candidates are thoroughly vetted for their viability and strong conservative credentials,” the release added.

Sean Ross is the editor of Yellowhammer News. You can follow him on Twitter @sean_yhn

12 hours ago

Mobile unveils plans for ‘Hall of Fame Courtyard’ to honor Hank Aaron and four other local MLB greats

The City of Mobile announced Tuesday that it plans to put in place a “Hall of Fame Courtyard” in the heart of downtown honoring the five members of the National Baseball Hall of Fame from the Mobile area, including recently deceased legend Hank Aaron.

In addition to Aaron, the project will memorialize Satchel Paige, Billy Williams, Ozzie Smith and Willie McCovey.

“These all-stars represent the best of our City, and through this display, they can continue to inspire new generations to strive for greatness in everything they do,” Mobile Mayor Sandy Stimpson said in a statement.

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The courtyard would be located between the city’s convention center and cruise terminal.

(City of Mobile/Contributed)

 

(City of Mobile/Contributed)

The city did not provide any cost estimates for the project, but disclosed that they envision the five statues to be life-sized and made of bronze.

“As City Councilman John Williams said, we want to always have at least one unoccupied pedestal that reads ‘Future Hall of Famer’ so young people can stand on it, take photographs and show their aspirations to one day join the ranks of these athletic superstars. This courtyard is as much about our future as our past,” Stimpson noted.

Cleon Jones, a notable former Major League Baseball player himself, has been working with the city on honoring its significant place in baseball history.

In the 1969 MLB All-star game, Jones played left field, Aaron played right field and McCovey played first base, meaning one-third of the National League’s players on the field were from Mobile.

“To have three Mobilians on the same All-Star Team, that’s just unheard of,” Jones explained in a statement.

“Our kids should know all of this history, and I hope it does for them what it did for me. Hank Aaron was my idol as a teenager growing up in Mobile, and that propelled me to want to be a Major League Baseball player,” he added.

The City of Mobile passed along the following bios of each of the five men who will have a statue in the courtyard:

Satchel Paige: From Mobile, Ala., Paige was inducted into the Baseball Hall of Fame in 1971. His primary team was the Kansas City Monarchs and his primary position was Pitcher. He began his professional career in the Negro Leagues in the 1920s after being discharged from reform school in Alabama. The 6 foot 3 right hander quickly became the biggest drawing card in Negro baseball, able to overpower batters with a buggy-whipped fastball. In the late 1930’s, Paige developed arm problems for the first time. Kansas City Monarchs owner J.L. Wilkinson singed Paige to his “B” team, giving Paige time to heal. Within a year, Paige’s shoulder had recovered and his fastball returned.

Hank Aaron: From Mobile, Ala, Aaron was inducted into the Baseball Hall of Fame in 1982. His primary team was the Milwaukee Braves and his primary position was Right Fielder. Aaron grew up in humble surroundings in Mobile, AL. He was a consistent producer both at the plate and in the field, reaching the .300 mark in batting 14 times, 30 home runs 15 times, 90 RBI (Runs Batted In) 16 times and captured 3 Gold Glove Awards en-route to 25 All-Star Game Selections. It was on April 8, 1974, that Hammerin’ Hank sent a 1-0 pitch into the left field bullpen breaking one of sport’s most cherished records: Babe Ruth’s mark of 714 home runs, giving Aaron 755 career home runs.

Billy Williams: From Whistler, Ala., Williams was inducted into the Baseball Hall of Fame in 1987. His primary team was the Chicago Cubs and his primary position was Left Fielder. The first line of text on Billy Williams’ National Baseball Hall of Fame plaque may sum up the longtime Chicago Cubs leftfielder the best: “Soft-spoken, clutch performer was one of the most respected hitters of his day.” Over an 18-season big league career -16 spent with the Cubs- Williams had 2,711 hits, a .290 batting average, 426 home runs, hit 20 or more home runs 13 straight seasons and once held the National League record for consecutive games played with 1,117.

Ozzie Smith: From Mobile, Ala, Smith was inducted into the Baseball Hall of Fame in 2002. His primary team was the St. Louis Cardinals and his primary position was Shortstop. Known as “The Wizard of Oz,” Ozzie Smith combined athletic ability with acrobatic skill to become one of the greatest defensive shortstops of all time. The 13-time Gold Glove Award winner redefined the position in his nearly two decades of work with the San Diego Padres and St. Louis Cardinals, setting the all-time record for assists by a shortstop. Smith’s fame increased after his trade to St. Louis Cardinals, where he helped the team to three National League pennants and the 1982 World Series title. Smith Retired in 1996, the same year the Cardinals retired his number, and in his 19 seasons was named to 15 All-Star teams.

Willie Lee McCovey: From Mobile, Ala., McCovey was inducted to the Hall of Fame in 1986. His primary team was the San Francisco Giants and his primary position is 1st Baseman. Willie McCovey burst on the scene in 1959, winning National League Rookie of the Year honors despite playing in just 52 games. McCovey was a six time All-Star who led the league in intentional walks four times. McCovey played quietly most of his career with knee, hip and foot injuries. McCovey finished his career with a .270 batting average, 1,555 RBI and a .515 slugging percentage. His 45 intentional walks in 1969 set a new record that stood for more than 30 years.

Henry Thornton is a staff writer for Yellowhammer News. You can contact him by email: henry@yellowhammernews.com or on Twitter @HenryThornton95.

12 hours ago

Gary Palmer: Left again showing ‘complete disregard for the Constitution’ with impeachment trial of private citizen Trump

Congressman Gary Palmer (AL-06) on Tuesday interviewed with Talk 99.5’s “Matt & Val Show,” blasting congressional Democrats’ current effort to convict former President Donald Trump in a Senate impeachment trial as unconstitutional.

The House of Representatives, on a largely party-line vote, voted to impeach Trump when he was still in office following the January 6 rioting and violence at the Capitol. The sole charge was “inciting violence against the Government of the United States.”

Palmer at the time voted against impeaching Trump; while the Central Alabama congressman has said that he believes Trump was partially responsible for what occurred on January 6, Palmer said that “a vote on an article of impeachment one week before a presidential transition only serves to intensify division and anger.”

In the same remarks, Palmer also raised concerns with the process — or total lack of a process — used to impeach Trump ahead of his leaving office on January 20. For the first time in American history, there was no inquiry held ahead of impeaching the president, nor was Trump given the ability to defend himself in the House.

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Now, the Senate is set to mark another historic first — the impeachment trial of a private citizen who finished his term of office. Senator Rand Paul (R-KY) raised a formal objection to this point ahead of senators being sworn in for the trial on Tuesday, arguing that the Constitution does not allow for impeachment proceedings against someone who has already left office.

Paul’s objection failed, although 44 of his Republican colleagues voted to sustain his point of order, including Senators Richard Shelby (R-AL) and Tommy Tuberville (R-AL).

The House did not send the article of impeachment to the Senate until Monday, five days after Trump had ceased to be president.

Palmer on Tuesday morning continued to denounce the process being utilized by Democrats. He also spoke about the fact that Chief Justice John Roberts has declined to preside over the impeachment trial; the Constitution mandates that the chief justice preside over the impeachment trial of a sitting president. Senate President Pro Tem Patrick Leahy (D-VT) plans to preside over Trump’s trial.

“[M]y perspective is that this is not a constitutional exercise,” said Palmer, the fifth-highest ranking Republican in the House. “President Trump is no longer in office. And it’s my reading of the Constitution he’s not subject to being impeached.”

“So, I think what you’re seeing here is a political exercise, Val,” he continued. “They want to try to impose upon him some punitive measure that will prevent him from running for office again, because I think they see him as the political force that he is — and they fear him.”

Co-host Matt Murphy then outlined his belief that Democrats are willfully ignoring the Constitution by holding the impeachment trial because of political calculations.

“Well, Matt, I’ve told you this before: the left thinks the average American is stupid,” Palmer lamented. “They have a complete disregard for the Constitution. We’ve seen it play out time and time again.”

“The whole impeachment exercise in the House this last time was totally lacking in due process. There was no opportunity for the president to offer a defense, to have anyone speak on his behalf other than the members on the floor. It was more an inquisition than it was an impeachment,” he added. “And as I said before, this is not about a true impeachment process. It’s all political. And it will not succeed in the Senate. There’s not going to be two-thirds of the Senate that will vote for this. I think there’s serious questions constitutionally about whether or not they can even have the trial in the Senate because the chief justice has refused to preside, as mandated by the Constitution. So, everybody needs to understand what this is. And I don’t care what your view of President Trump was or is or will be. Right now what matters is ‘do we have constitutional government?’ And I’ve raised some strong questions about whether or not we do.”

Palmer subsequently reiterated, “There’s no constitutional mechanism for them (the Senate) to conduct a trial the way they’re planning to do it.”

Sean Ross is the editor of Yellowhammer News. You can follow him on Twitter @sean_yhn

13 hours ago

U.S. Rep. Barry Moore lands on Agriculture, Veterans committees

U.S. Rep. Barry Moore (AL-02) on Tuesday confirmed he has been appointed to the House Agriculture Committee and the Committee on Veterans’ Affairs.

Moore began serving his first term in Congress on January 3 upon the start of the 117th Congress.

The Republican from Enterprise is himself a veteran, and agriculture in Alabama’s Second Congressional District accounts for 96,295 jobs and $3.7 billion in annual wages. Former U.S. Rep. Martha Roby (AL-02) was also on the Agriculture Committee when she was a freshman member during the 112th Congress.

In a statement, Moore commented, “I’m excited and eager to serve on these two committees to guarantee that the voices of Alabama’s 2nd Congressional District will be heard in Washington.”

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“Growing up on a farm, I not only learned the value of hard work but the great sacrifices our farmers make to put food on our tables and clothes on our backs,” he continued. “Agriculture plays a critical role in Alabama, and I’m looking forward to serving as a voice for our agricultural producers on the House Agriculture Committee.”

“As a veteran, I understand the severity of ensuring that every American who served this great country in our military receives the crucial benefits and services they deserve,” Moore concluded. “After they selflessly fought to defend our country, I vow to fight for their needs and to make sure they receive quality care. Let’s get to work.”

Alabama Farmers Federation President Jimmy Parnell thanked Moore for seeking out the opportunity to represent Alabama farmers in Congress through service on the Agriculture Committee.

“We appreciate Congressman Moore’s desire to serve on the House Agriculture Committee and look forward to working with him to ensure the voice of Alabama farmers continues to be heard in Washington,” Parnell said in a statement. “Having grown up on a family farm in Coffee County, he has a strong appreciation for the job Alabama farmers do every day. He earned a degree in agricultural science from Auburn University and was a friend of farmers while serving in the Alabama Legislature. We are confident Congressman Moore will be an advocate for Alabama agriculture and the 2nd Congressional District as a member of the Ag Committee.”

Sean Ross is the editor of Yellowhammer News. You can follow him on Twitter @sean_yhn

16 hours ago

Overnight tornado in Fultondale kills teenager, injures dozens

A tornado ripped through the town of Fultondale overnight, killing one 14-year-old boy, injuring around 30, and destroying significant amounts of property.

As of 10:30 a.m., emergency response teams are still conducting operations in the area. Eighteen people were reportedly hospitalized due to the storm as of Tuesday morning.

Fultondale is a town of around 8,300 people just north of Birmingham. The tornado was confirmed by the National Weather Service in Birmingham at around 10:45 p.m. on Monday.

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Reporters who arrived on the scene Tuesday morning shared images of the destruction.

The nearby town of Center Point also reportedly saw damage from the storm.

Local officials confirmed Tuesday that the young man who perished in the storm was a 14-year-old student at Fultondale High School. He and his father reportedly took shelter in their basement as recommended when a large tree fell on their dwelling.

Local emergency responders are asking the general public to say away from the most affected areas until they can clear the damage.

The Fultondale High School building suffered extreme damage in the storm. Fultondale Superintendent Dr. Walter Gonsoulin told reporters that he does not expect teachers and students will ever be able to return to the building, and the tornado will likely speed up existing plans to replace the school.

Estimates on the total amount of property damage and the number of families displaced by the storm are still being developed.

Those who wish to support the community can bring nonperishable items to the Fultondale City Hall, where a command center is operating. They can also donate to the Salvation Army or go to the United Way of Central Alabama’s web portal dedicated to the tornado response.

This story is breaking and may be updated.

Henry Thornton is a staff writer for Yellowhammer News. You can contact him by email: henry@yellowhammernews.com or on Twitter @HenryThornton95.