Payday lenders provide a valuable service

It is unfortunate that irresponsible payday lenders try to collect illegitimate loans from its customers ("Debt-collection firm ordered to cease and desist in Maryland," Nov. 22). However, the harsh reality is that eliminating payday lenders does not eliminate the need for short-term credit. Therefore, ensuring that consumers are educated and have access to responsible payday lenders is important. For example, members of Community Financial Services Association of America (CFSA) are responsible lenders that operate within their customers' state's regulations.

The problem is that a few states have passed legislation capping the annual interest rates on payday loans at 36 percent APR, which forces lenders to close their stores and leave consumers with fewer credit options. Even legitimate payday lending companies cannot operate under such low rate caps because payday loans are two-week loans and cannot be offered at the same APRs as annual credit products. At a 36 percent APR, the total fee charged on a $100, two-week advance would be $1.38. Payday advance lenders could not cover the cost of originating a loan, let alone meeting employee payroll and other fixed business expenses. As a result, many customers, out of desperation or because of lack of access to legitimate payday lenders, use services of unlicensed payday lending companies or even worse, off-shore Internet lending.

The real-world examples are proof of the consequences of overly restrictive annual rate caps. Hundreds of stores have closed, thousands of employees have lost their jobs, hundreds of thousands of consumers are left to choose among less desirable credit options, or fall victims to scam or illegitimate lenders.

Rebecca Adler, Alexandria, Va.

The writer is vice president of communications at the Community Financial Services Association of America.

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