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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP® Joel Ohman

UPDATED: Nov 21, 2013

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The war between the payday loan industry and anti-payday loan activists raged across America in 2013.

This was not a war of bullets, missiles, and drones, but instead a war of legislation, political pressure, and lobbying.

Like many long-lasting wars across the ages, the Payday Loan War experienced some interesting developments over the last year.

The Consumer Financial Protection Bureau (CFPB), stretching its legs as a young government organization, let it be known that it would give proper attention to cash advance lending complaints.

In New York, the Attorney General successfully pressured a Native American payday loan company into closing its doors. Meanwhile, small cities and counties in parts of the country used zoning laws to limit how many cash advance stores could operate in their communities.

However, for online payday loans, no effective legislation succeeded at controlling payday loan lending and no states implemented new bans on cash advances.

Was there a winner in the 2013 Payday Loan War? What is America going to see in the 2014 Payday Loan War?

The Winner of the 2013 Payday Loan War

Unsurprisingly, the profitable and politically-connected payday loan industry came out on top at the end of 2013.

States didn’t enact sweeping reforms to change payday loan lending, and at the federal level, payday loan lending is still alive and well.

Congress was far more occupied with other matters — federal student loan interest rates, the NSA Surveillance Scandal, and the Affordable Care Act — to be bothered with cash advance lending.

Jim Wells, President of Wellspring Consulting International, said that there were only minor legislative changes for payday loans in 2013.

“Mostly nuisance actions instigated by the President’s misguided Financial Fraud Enforcement Task force, which like most federal agencies presumes that short-term lending by non-banks is a financial crime — regardless of the millions of Americans that rely on the product in the absence of bank lending,” said Wells.

Consumer activists, who constantly protest against payday loans and speak out against the lending industry, failed to win any major battles against the forces of the payday loan industry.

The only notable victory this year was against Western Sky, which was forced to close its doors. This victory wasn’t exactly won by anti-payday loan activists but rather by a member of New York’s government, and hardly counts as a victory by the people against a faceless corporation.

Despite this lack of success in 2013, anti-payday loan activists will continue their well-intentioned but uncoordinated crusade in 2014.

This battle will continue on for several reasons.

Reasons to Rally

First, cash advances are still seen as a curse and form of predatory lending.

Granted, there certainly are payday loan lenders who abuse rules, regulations, and state laws but that does not mean the whole industry is made up of financial predators.

Just because many name-brand banks abused mortgage lending a few years ago in the Housing Crisis, that doesn’t mean America should outlaw mortgage loans.

But something should be said when even former payday loan company employees leave the industry with “a bad taste in their mouths,” so to speak.

David M. Barker, a former Bank Examiner and CPA, said that as a young man he worked for a small loan company that charged 36 percent APR.

“I felt bad charging such rates, especially when many of the customers had good enough credit ratings that they could have borrowed from a bank or credit union at rates less than 10 percent APR,” said Barker. “I think they are trampling down those who are already weak and susceptible. They are taking advantage of those who are ignorant, or who have made foolish credit decisions in the past.”

Like many consumer advocates, Barker believes that cash advances should be outlawed along with auto title loans. He attributes the success of the payday loan industry to its power to lobby politicians, a solid feature in America’s current political system.

“Granted, if, as the payday lending industry often states, a person is able to borrow $100 and pay $10 to avoid bouncing several checks, with returned check fees totaling more than $100, maybe some good came from that particular loan,” said Barker.

However, positive outcomes are exceptions to the rule in Barker’s experience. Instead, payday loan borrowers can fall victim to cycles of debt, especially if they borrowed from a predatory lender.

The second reason that the lending industry will see continued opposition in 2014 is that payday loans are simply being marketed incorrectly. Payday loans are in need of a clear and organized PR makeover. People still cling to the stereotype that cash advances are for urban minorities who are often uneducated and unemployed, or that they are only for emergency uses. This couldn’t be further from the truth.

Until the lending industry finds a way to effectively show that payday loans are clear necessities for America’s unbanked and underbanked, there will be a continuation of the Payday Loan War.

The Upcoming 2014 Payday Loan War

For the time being and until an economy exists where people have such high paying jobs and good credit that they don’t need payday loans, cash advances will still exist.

Naturally, people will fight over payday loans in 2014 and some of the War’s trends that America has seen in 2013 will carry over into the next year.

Trent Silver, Chief Marketing Officer of Silver Visibility, said that while the CFPB began overseeing the payday loan industry in Jan. 2012, only on Nov. 6, 2013 did they actually begin accepting payday loan consumer complaints.

“America will see a continued push for increased cash advance legislation towards the end of 2013, with an increase in anti-payday lending lobbying from religious groups and attorneys generals in 2014,” said Silver. “Anti-payday loan sentiment is undoubtedly on the rise, but in my opinion it will lead only to a temporary push by the state and federal legislators, followed by several enforcement actions which I believe will be settled.”

Enforcement actions will likely be just for show, with their sole intention being to prove that the CFPB has muscles it can flex. Efforts to exterminate cash advance lending are likely to fall flat for one main reason.

“Too many Americans provide great testimonials to the value of payday loans in their lives, as their only option, and I don’t expect to see increased legislation have any lasting effect,” said Silver. “I believe towards the end of 2014, the industry will be back to the status quo.”

In spite of 2013’s clear victory and survival for the payday loan industry, there will still be some voices who argue for outlawing cash advances completely. These voices have purely good intentions. They believe that predatory lenders, which in their estimation includes the entirety of the payday loan lending industry, deserve to be completely outlawed rather than regulated more. Outlawing payday loans would not only be ineffective, it would be damaging to many Americans.

“Outlawing them completely could be wreaking havoc on the millions of underbanked Americans who rely on them and have positive, life-changing experiences through these small loans,” said Silver. “Additionally, strong lobbying groups, such as the Online Lenders Alliance, have billions of dollars in funding and strong ties within Congress.”

Silver explained that a source of his within OLA told him of a meeting where Senator Harry Reid was told that the payday loan lobby didn’t want a certain bill to come to vote. “Consider it dead,” is what Senator Reid allegedly said in response. While this alleged conversation is hearsay, it is not impossible for the informed American to visualize such a scenario playing out, especially as more and more Americans become aware of how powerful lobbying is in the current political climate.

Despite the billions that the cash advance industry has in its coffers, Silver expects to see more Attorneys General facing off against the industry in order to jump on the anti-payday loan bandwagon.

“I can say with certainty that payday loans have been, and will continue to be one of the half-dozen hot industries that attorneys general will continue to push regulation against nationwide,” said Silver.

As for the cities and counties, such as those in Texas who tried to use zoning laws to regulate payday loan lending, Silver predicts this is little more than a game of cat and mouse. It will prove ineffective in 2014 and, at best, is a haphazard method of opposing cash advances.

This is, once again, because of the power of lobbying. State laws trump any zoning or county laws that are made. In effect, all the payday loan industry has to do is to curry favor with state lawmakers in order to circumvent any rules or laws made by a city council. When it comes to cash advances, Goliath routinely defeats David.

Some regulators and consumer advocates will continue to discuss the evils of payday loans, instead of focusing on developing alternatives or on addressing the economic reasons for why people are put into positions where they need cash advances.

Many anti-payday loan voices no doubt cheered with cries of victory upon reading of the fall of Western Sky. However, Wells believes the fall of Western Sky to be a rarity, simply a fluke in a battle waged by dollars and legislation. For the majority of cash advance companies, and especially brick and mortar stores, there will be no intimidation effect.

As for the coming 2014 year, Wells can only predict nothing but growth and clear skies for the mischaracterized payday loan industry. Even Google Ventures has announced it is investing into a cash advance company. In closing, Wells had this to say about the coming year, which is only weeks away:

“The alternative lending space is exploding, for consumers and small businesses.”

Fortunately in the Payday Loan War, “exploding” involves profits and not bodies.