Here’s proof the payday lending industry is paying for — and editing — favorable research studies
In the world of academic research, savvy readers know when to look out for “industry-sponsored studies.” These are funded by third parties that may have a vested interest in promoting research that benefits their bottom line. The practice is prevalent in just about every industry, from food to environmental science and can be used as a way to influence policy makers.
What’s not so common is evidence that a third-party group isn’t just footing the bill for favorable research but also directly editing it. That’s what a nonprofit watchdog says it discovered in a damning report released this week. The Campaign for Accountability (CfA) filed a public records request for emails exchanged between a payday lending trade group and a researcher who co-authored a 2011 report on the payday lending industry. According to the CfA’s report, University of Arkansas Tech Associate Professor Marc Anthony Fusaro was paid nearly $40,000 by the Consumer Credit Research Foundation, a trade group funded by Dollar Financial Group, a payday lender, to conduct a study that showed payday lending interest rates weren’t trapping customers in a “cycle of debt.”
Before going into the CfA’s findings, here’s a quick recap of the nefarious nature of payday loans: Payday loans are typically doled out in small amounts — an average of $430 — that are due in 14 days. When borrowers can’t afford to pay back the loans, that’s when things get expensive. In states that don’t cap payday loan interest rates, lenders are free to charge as high as 400% interest on unpaid loans, not to mention the fees they charge borrowers to extend their loan’s due date. Four out of five borrowers can’t pay back their loans so they roll them over into a new loan, incurring massive amounts of interest in the process (i.e.: the “cycle of debt”).
Back to the academic study in question. The study, published in November 2011, came at a time when many states were cracking down on the industry and imposing interest rate caps as low as 36% on payday lenders. Fusaro, an associate professor of economics, worked with nine payday lending companies to compare two groups of borrowers: one group that took out interest-free loans and another that took out loans with normal interest rates charged by the lenders. He then tracked how likely they were to pay back their debts on time. Fusaro concluded that there was no evidence that people who had higher interest rates were more likely to roll over their loans than those who had zero-interest loans. “High interest rates on payday loans are not the cause of a cycle of debt,” he wrote.
The emails CfA uncovered (over 1,000 in total), show months of back-and-forth interactions between the Fusaro, his co-author, Patricia Cirillo, and Hilary Miller, chairman of the Consumer Credit Research Foundation, the group that funded the study. Fusaro, whose prior research has focused largely on overdraft practices and debit cards, sent Miller and two unnamed CCRF “reviewers” the report more than once. Miller responded with line edits that ranged from simple pointers about grammar to entire rewrites of certain sections. Miller made a point to ask Fusaro to remove a section that thanked the nine payday lenders by name for their contributions. Miller also repeatedly asked Fusaro to add more specific language that calls into question the “cycle of debt” theory.
“What it needs is one or two solid paragraphs, right up front, that are devoted exclusively to discussion of the [cycle of debt],” Miller wrote in an email to Fusaro four months before the study was published. “You need to get this in (!).”
In an early draft of the report, Fusaro included information that shows payday loan borrowers tend to overdraft their bank accounts the month before seeking a payday loan. Cirillo, who heads up a boutique research firm called Cypress Research, emailed Fusaro to tell him Miller wanted that tidbit left out of the report. Miller’s argument was that it wasn’t the study’s objective to talk about overdrafts. The final report did not include this information.
Daniel Stevens, the CfA policy expert who uncovered the emails, says he was startled by how involved Miller was in the process. “The brazen part to me was the direct editing of the paper and just how hands on and involved the industry was in writing this paper,” Stevens says. “It certainly calls into question [Fusaro’s] research.”
In a statement to Yahoo Finance, Fusaro defended the report, saying the study was “scientifically rigorous” and he was “made to feel like” CCRF would give him “academic freedom” in his research.
“Mr. Miller expressed some concerns about unrelated findings, which we noticed in the data. But since those findings were unrelated to the study we had no plans to include them in this study,” Fusaro says. He also denied being paid the full $40,000 grant as detailed in the emails obtained by CfA. He says he was paid a total of $24,677, which included money to conduct the study and hire a research assistant.
Whatever changes Fusaro made, Miller was pleased. “We have edited your paper and we are pretty excited about it,” Miller wrote. “It really is quite smashing.”
Cirillo and Miller did not return requests for comment.
‘Our paranoia was justified’
Universities are constantly seeking outside funding sources, the majority of which come in the form of federal grants while the rest typically comes from nonprofit or private organizations. Ira Rheingold, executive director of the National Association of Consumer Advocates, says it’s not the fact that Fusaro’s research was funded by the payday lending industry that is uncommon, but how heavily involved the group was in the editing process.
“This is just standard play in [academia]. The only difference is they got caught with their pants down,” Rheingold says. “No one will take that study seriously…it shows everything we thought is actually true. Our paranoia was justified.”
Any impact Fusaro’s study might have on the payday lending industry has so far been negligible. Federal regulators are currently working on a set of rules that could, for the first time, impose nationwide regulations on the payday lending industry. Meanwhile, state regulators have redoubled their efforts to rein in payday lenders Currently, half of all states either restrict payday lending or have imposed caps on interest rates.
Still, this could just be the tip of the iceberg. The CfA has made similar records requests at other universities that have issued reports on the payday lending industry, including Kennesaw State University in Georgia, George Mason University in Virginia and the University of California, Davis.
“We focus on documents and putting them out there,” Stevens says. “Then we let them speak for themselves.”