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Payday Loans are not Immoral

Letter blocks spelling out "Ethics"
There is currently a state-wide debate taking place in Missouri. Consumer advocates are upset over high annual percentage rates (APRs) associated with payday loans, and are trying to push legislation to institute an interest rate cap on these cash advances. In order for this legislation to go through their state government, though, they must receive a certain amount of signatures on a petition. The group called Missourians for Responsible Lending are representing these consumer advocates and spreading the petition out through online circles trying to gather the required signatures.

The opponent to the Missourians for Responsible Lending is a group called Stand Up Missouri, that claims to represent not payday loans, but installment loans. In the eyes of consumer advocates, however, that’s merely semantics. Stand Up Missouri, funded by a man named Tom Hudgins, is throwing counterattacks across the web trying to thwart the petition from gathering enough support.

But as with most debates consisting of two very passionate parties, facts began to be forgotten, and opinionated mud-slinging began.

This election-esque race for gathering public support and slandering the other side reached its crescendo today when a supporter of Missourians for Responsible Lending published a short opinion article called “Tom Hudgins is Immoral.”

Baseless, Ungrounded, and Sensationalist Claims

The title of the published article already lets readers know what to expect: a passionate, ad hominem attack more concerned with swaying the public’s attention through emotion and name calling than presenting a sound and valid argument.

Consider some of the following excerpts:

“Lobbyists, such as Tom Hudgins, chairman of Stand Up Missouri, are spending millions to keep Missouri Payday Loans the most expensive in America.”

Payday loan laws in Missouri are definitely loose when compared to some other states, but to make the claim that they’re the most expensive in America is one that requires cited sources—or at the very least some kind of statistic for readers to work with. Particularly when Missouri law sets the limit of a single payday loan at $500, whereas Idaho sets no cap on the amount a single payday loan can be given for. Additionally, Missouri has an APR cap on their cash advances. Idaho does not.

Or consider Utah, who does not have a maximum loan amount, an APR limit, a rollover limit, or a maximum number of outstanding payday loans a borrower can have running concurrently. If one wants to really stretch the limits of what’s permissible with this type of financing, Utah’s the place to do it—not Missouri.

And despite the fact that payday loans are an expensive form of borrowing, there is still a demand for them. According to an article published in the Fordham Journal of Corporate Financial Law, over 92 percent of borrowers felt that payday lenders provide a useful service, and chose to use these services despite the fact that over 91 percent of payday loan borrowers have access to other forms of credit. If the public felt this service hurt them, they wouldn’t patron it.

“At [payday loan] rates, a typical payday borrower will pay over $700 for a $300 loan.”

The problem with this remark is the word “typical.” While it’s certainly possible to pay over 100 percent interest on a payday loan (if a borrower subjects themselves to rollover after rollover), it’s certainly not “typical.” 

Under Missouri law, a borrower would need to receive a $300 payday loan and roll it over five times in order to hit that $700 for a $300 loan statistic. But according to the Fordham article, a 2001 Georgetown University study revealed that 60.1 percent of borrowers renewed [rolled over] their payday loans less than five times a year.

Assuming all borrowers took out only one loan a year, the “typical” borrower still wouldn’t statistically hit the required five rollovers to reach the $700 for a $300 loan, as the opinion writer suggests.

Furthermore, Missouri’s Division of Finance itself released statistics revealing the average number of renewals is only 1.6—otherwise read as 3.4 rollovers short of being “typical.” Contrary to the proponent’s ungrounded claim, the typical payday borrower gets nowhere near paying $700 for a $300 loan.

Finally, nowhere in this opinion piece does the writer make a real claim as to why Tom Hudgins is immoral. Hudgins is supporting an industry in which he is financially vested, but does that defy what we would call moral? Until Missourians for Responsible Lending begins using facts to support their claims—and article titles—it would behoove the group to stop with the sensationalism and the appeals to emotion.