The P.A.

A weekly address from Patrick Adams,
President of St. Louis Community Credit Union

Whether You Use Them or Not, Payday Lenders Hurt St. Louis

On February 28th, 2011, posted in: Uncategorized by

I have no problem with capitalism.  In fact, I love it.  But I have a plethora of problems with payday lenders.  They exist because traditional banking packed up the truck and moved to the suburbs in the middle of the night leaving the low/moderate income market wide open for legalized exploitation.

I have no problem with finding a market niche and owning it.  In fact, I love it.  But I do have disdain for the stripping of wealth from our community by charging an average APR on a loan equal to 444.61%.

Regulation flowing from Washington, D.C., like the flood of ’93 ensures that credit cards, mortgage loans and the access to capital for working people will get tougher, further inviting the wolf to the table.

After reading the cover article on payday lending in the February 25th edition of the St. Louis Business Journal, I am further convinced that the payday lending industry is ripping a hole in the standard of living and oppressing the ability to better the lifestyle of those residents of our great community.

If my math is right (there are lots of zeroes, commas and decimal points), most recent numbers indicate that Missouri’s payday lenders (think urban concentrations) have an aggregate, average loan balance of about $747.4 million.  At an average APR of 444.61%, they’ve got a top-line revenue topping out at about $3.32 billion (I said billion).  Yes, capitalism is alive and well and thriving in a storefront inside a strip center in an urban neighborhood with a nearby bus stop.

Since 2009, it would appear as though loan defaults (losses) ranged somewhere between $45-$50 million, or a little north of 6% of originated loans.  If you’re doing some “risk-adjusted” return calculations, your conclusion is correct: HOLY COW!!!

Granted, there are expenses tied to operations, capital costs, etc., etc., but you would have to have one opulent operation and one heck of a costly line-of-credit to burn through the fat in that cash cow!

“Sustainability” has become a popular discussion recently in the business world.  Environmentally speaking, we are on a path that is using resources at a much faster pace than replenishment.  The federal deficit is also not sustainable.  If sustainability is best described as the use of resources today in a manner to ensure that future generations do not suffer and, even better yet, prosper, then we are failing miserably.

So what about those people we call neighbors who use payday lenders?  Is that sustainable?  Is that creating economic empowerment?  The degradation of our community, the fight against blight, and the concern for economic justice are all negatively impacted by the presence of payday lenders.

There is a shared place somewhere between 444.61% APR and societal needs, and it must be found.  To avoid being legislated, payday lenders must take the lead in bringing their businesses and who they serve closer together.

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