November 30, 2015 In The News, News, Payday Lenders

Tainted Study Reveals Desperate Attempt by Payday Loan Industry to Shape Debate

By: The Editorial Board, Kansas City Star, 11/09/15

The Campaign for Accountability did a valuable service in exposing the industry interference in a supposedly unbiased academic study. The findings should send a message to other researchers that their work might come under scrutiny.

The payday loan industry goes to great lengths to promote the myth that it is offering a friendly product designed to help out people in a pinch.

Need help with that medical bill? Lights about to go off? Visit your local payday lender. Which, given the lack of regulation in Kansas and especially in Missouri, is never far away.

But the portrayal of the short-term lending industry as benign or even helpful is false. Most customers don’t have the means to pay off their loans on time. If they did, payday shops would be out of business. These places need for their customers to keep coming back, rolling over loans and racking up more interest and fees.

The federal Consumer Financial Protection Bureau has reported that almost 90 percent of storefront payday loans go to borrowers with seven or more transactions a year, and that most borrowers end up paying more in fees than the amount of their initial loan.

Interest rates nationwide exceed 300 percent when extended over a year’s time. In Missouri, where regulations on payday loans are almost nonexistent, the average annual percentage rate exceeds 400 percent.

Findings like that have the industry on edge. The Consumer Financial Protection Bureau plans to soon propose rules to rein in payday lenders. Not surprisingly, the pushback is in full swing. The industry is priming for court action and encouraging preventive legislation at the federal and state levels.

The strategy relies on favorable academic studies to present to lawmakers and enter as legal evidence. A pro-industry group, the Consumer Credit Research Foundation, has underwritten multiple studies that attempt to point out positive aspects of payday lending and counteract claims that high-interest short-term loans are harmful to service members, minority communities and consumers in general.

But a Washington, D.C., watchdog group last week released the findings of an investigation showing that, at least in one instance, a university’s research was far from independent.

The Campaign for Accountability sought information about four university research projects that resulted in findings favorable to the short-term lending industry.

Three of the universities, Kennesaw State University in Georgia, George Mason University in Virginia, and the University of California, Davis, resisted turning over documents. The funding group, the Consumer Credit Research Foundation, went to court to prevent Kennesaw State from releasing records.

Arkansas Tech University in Russellville complied with the request, turning over emails and other communications that have turned out to be eye opening.

The Consumer Credit Research Foundation paid Arkansas Tech economics professor Marc Fusaro about $40,000 for a 2011 study, “Do Payday Loans Trap Consumer in a Cycle of Debt?” The foundation also paid an assistant, Patricia Cirillo, an undisclosed amount for expenses.

That in itself is not unusual. Drug makers, food manufacturers and many other industries fund academic research. What’s startling about the Arkansas Tech study is the industry interference documented by the Campaign for Accountability.

Emails show that Hilary Miller, chairman of the Consumer Credit Research Foundation, was given access to drafts of the academic report, allowed to propose line-by-line edits and even contribute entire paragraphs of text.

When researchers noted that many payday loan borrowers have heavy overdrafts on their debit cards, Miller directed them to omit that information from the report. It wasn’t “the objective of the study,” he reportedly told Cirillo. (True, but the willingness of payday lenders to do business with consumers without the ability to repay their loans is a key criticism of the industry, and one that the Consumer Financial Protection Bureau wants to act on.)

Miller also directed the researchers to leave any mention of cooperation by payday lenders out of the report. He even prepared a press release for the university’s news bureau to use when announcing the study.

The researchers worked with several payday lending companies to compare the experiences of borrowers who were offered interest-free loans against borrowers who took out loans at the lenders’ normal high interest rates.

Fusaro concluded there was no evidence that the borrowers paying the high interest rates were more likely to roll over their loans than the zero-interest group.

“High interest rates on payday loans are not the cause of a cycle of debt,” he wrote. Not emphasized in the study was the finding that the median borrower took out eight loans in a row, suggesting that many payday customers can’t afford the loans regardless of the interest rate.

The Campaign for Accountability did a valuable service in exposing the industry interference in a supposedly unbiased academic study. The findings should send a message to other researchers that their work might come under scrutiny.

Most people know to look skeptically at studies coming from an industry and so-called think tanks. Academic research is supposed to be a guiding light in a murky landscape. In this case, it wasn’t.

There is little, if any, credible research to show that payday lending provides a social benefit by trapping people in a debt cycle. The industry’s attempt to manufacture evidence to bolster its case only points out the need for tough regulations.