Discussion Draft – not for distribution


FOR IMMEDIATE RELEASE                                           

Contact: Consumer Credit Research Foundation

(202) 393-0013


Consumer Credit Research Foundation Reviews a Flawed

California Reinvestment Coalition Report


WASHINGTON, DCApril 27, 2005 – The California Reinvestment Coalition’s (CRC) March 2005 report “The Financial Divide: An Uneven Playing Field – Bank Financing of Check Cashers and Payday Lenders in California Communities” contains fundamentally inaccurate analysis and conclusions, according to a leading non-profit analysis group, Consumer Credit Research Foundation.  For example:


CRC’s report asserts the market for payday lending is not competitive.  Yet, their own analysis acknowledges that “the number of check cashers and payday lenders has increased nationally from 2,000 in 1996 to 22,000 in 2003 and the number is still growing.”  Consumer Credit Research Foundation’s scholars have advised it that a 1,000% growth rate is evidence of a vibrantly competitive marketplace, which is increasingly attractive to consumers and investors.   More entrants in the marketplace and limited regulatory hindrances increase competition, which drives prices down and benefits consumers.


CRC’s report asserts that check cashiers and payday lenders target low income communities and communities of color. Yet, the April 7, 2005 report of a study commissioned by the Federal Deposit Insurance Corporation’s Center for Financial Research said, "Despite allegations to the contrary, we didn't find evidence that payday advance stores tend to locate in minority neighborhoods."


CRC’s report asserts that check cashers are financial price-gougers because they charge 2% or more to cash payroll checks that could otherwise be deposited for free into a mainstream checking or savings account.  Common sense suggests that a 2% or higher fee is reasonable, and notes that many consumers are dissuaded or even prohibited from opening a bank account because of minimum balance requirements and additional bank fees that, when combined, are more expensive than payroll check cashing fees. In fact, many traditional consumer deposit accounts incur substantial costs, even if the accounts are described as “free” (e.g., zero interest on balances, monthly fees for modest balances and very substantial bounced check fees which can approach $30 per occurrence). 


“This report contains many fundamental flaws, weak analysis and relies upon repetition of flawed arguments and assumptions that have been refuted by other scholarly works. As the payday lending industry and product mature, consumers should continue to benefit from competitive access to capital," observed William O. Brown, Associate Professor of Economics at Claremont McKenna College in Claremont, Calif. and recent co-author of Payday Lending: A Practical Overview of a Growing Component of America's Economy published by Consumer Credit Research Foundation based in Washington, D.C.



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