Business Leader Forum - 2018 Spring - Dr. Robert N Mayer
It's. A pleasure to be here today as part of the continuing. Efforts to strengthen, ties between solar. Community College and the, University of Utah in particular. Between. The School of Business here, and the, College of social behavioral science, at the, University of Utah which includes my department, which is the department of family and consumer studies. Within. That probe that, within that department we. Offer an emphasis in, financial. Planning which. Offers, the courses, that you need to become a financial planner or certified, financial planner, it's not the only thing you need to do so, to, let you know a little bit more about that Jenny, stout who is one of our departments academic, advisors, well, as a handout about that financial, planning program, and. When. We're done you'll have a chance to talk to Jenny I'm also accompanied today by dr., Kathleen zyk who is the associate dean, of our College of Social and Behavioral Science, and she's been here at a number of occasions. Because, our College includes. Anthropology. Economics. Sociology. Psychology. Political. Science. And geography. Did. I mention that twice No okay so it spans multiple colleges, here that's like, so. You can also talk to dr.. Zyk about any of our programs if as, well so. One. Of the takeaways for, today is that, even. If you are interested. In business or if. You're interested in business you don't necessarily, have. To go to a business school to study topics that are relevant to business because, that's what I've been doing for all my career is looking. At the same topics. That many would do in a business school in fact I've taught in a business school but, looking at it from the consumers, perspective, looking. At the challenges, that consumers, face. And how those can be overcome and ultimately. That's. What businesses, do as well right they, address consumer needs and they're, successful, to the extent that they do that so, if you're thinking about going on to the University of Utah the, College of Business that would be great but, our our College, offers a number of majors economics. And our department, that are a lot cheaper than going. To the business, and maybe just as relevant for you perhaps, more so so. I framed. My presentation. Today in terms of the legal and political environment, of business because that's essentially, what. I study as a, professor, of consumer studies and. I'm gonna focus on payday lending, because, that's a topic that I've done some research on in recent years, and. It's got a nice local dimension to it as well. So. If you have questions, along the way feel free, to interrupt, with your hand and, I'll be happy to address. Your concerns as as we go along, so most, of you probably know what. A payday loan, is or a payday lender is we, have a lot of them here in Utah, but. Essentially. They offer high-cost. Short-term. Loans, generally. In the amount of $500. Or less, that's. Typically, due on the borrower's next, payday that's why it's called a payday loan you, write a check. That's. Dated, a week or two later from. Your checking account and that's supposedly gonna, have the money then to pay for it out of your next payday and. If you don't general. You will roll it over and take out another loan for. Another fee and it gets pretty expensive pretty, quickly. If. You, look at it from the point of view of interest, rates or annual, percentage rate, which, is the common way the loans are described, the interest, rates can be in the three to five, hundred. To five hundred percent, range, which. Is really expensive and. Some. Payday lenders say that's irrelevant, because. If a person takes out the loan say three hundred dollars and they pay us thirty.
Dollars At the end of two weeks the, APR doesn't really mean anything it's really a fee but. Because so many people can't, pay off the loan at the end of the two weeks and then, have to take out a new loan and a new loan in a new loan then, all of a sudden we're getting to, a situation where, the annual rate, actually, has relevance. So. There's. A long. Ongoing debate, about whether. Payday lending is good or bad and it, really depends on your perspective and. It's really not a debate that I really, want to get into some, people say payday, loans are a lifesaver. They, give people who. Are desperate, for cash short. Term access, to cash which they can then pay back later. Other. People, describe. Payday lending more in terms of sharks and loan, sharks, in particular. Obviously. They, don't like payday loans very much and I like this picture, just. Because it's one of those great chalk artists, who, are able to create that 3d effect and also, it emphasizes, the idea of the debt trap or debt hole and that's. How a lot of people who. Are working, toward reform of payday lending see. This industry, as really, a trap for people but. I just think it's great artwork too. So. Again I'm not going to get into the issue of whether they're good or bad because they can be good and they, can be bad. The. Real poverty, the real villain, in this story is poverty it's the situation that makes people, so, desperate, that they're willing to take out a loan that's, the equivalent of three or four or five hundred percent Interest so, it isn't really the payday lenders, are evil. Even if you're against payday lending the real evil is poverty and that's obviously a much more complex, issue I was. Trained as a sociologist at, the University of California. So. I'm interested in how people organize. To. Press their, views. Of what makes for a better society what. Leads to social movements and in. Particular, in my case I'm interested in the consumer, movement which. In many many, people view is essentially, a David versus Goliath battle, right the, consumer movement is the David they don't have a whole lot of money they don't have a whole lot of power and they're, up against, some very powerful interests, in society, generally, businesses. Of various kinds, sometimes. The government as well, so. I'm interested in that how, does the little guy win and so. I've written a number of books about consumer movements. And. Here's. Just a couple of them some of them were already mentioned so. Again I wanted, to make sure I plugged, our. Department. Not. Only as. An, alternative, to business just as a, very, interesting major, and of it self we have a major called consumer. And community studies, and, it. Focuses, on, what. Makes for healthy consumers, as well as healthy communities. The, name of our department, again and I've mentioned already that, we offer the six, courses, that you need to, become a certified financial planner, in.
Addition, To the courses you have to pass an exam as well, as have a certain number of years of experience, so. Those were quickly the courses you need but in, talking about payday lending today I want to give you some historical, context, give, you the regulatory background of the industry. And then talk about the story here in Utah and then draw some broader lessons, yes you, can major, in, anything. As well, as long as you take. These. Six classes, and we offer in a certificate say. You're an English. Major you, could take these six classes. And. Become. A certified financial planner. This. Class you. Can get, credit for with, classes, here at slick the. Remaining classes these five mm level classes you have to take it to you so, that could make it five it actually could be five classes, that you would take. Okay. Thanks for that question, okay. So historical. Context, the, payday lending industry essentially. Began in the 1980s, it, experienced. A lot of growth especially, during the 1990s. And that was true just. As much in Utah's it was nationally, it's, difficult, to know exactly, how many payday lenders, there were in various years because before 1999. They. Didn't have to register. Beginning. In 1999, they had to register with the state and so we have good data beginning. In 1999, but, before that it's more, difficult to estimate how. Many payday lenders and associated, businesses, like check cashers, there, were in Utah so a professor, at the University of Utah did some research on that by, looking at yellow pages through. Various years and looking for advertisements. For payday lenders and check cashers, and, he. Came up with this chart and you, can see even before registration, was required in 1999. He. Able to document the, rise of petty lending in Utah by, looking at the number of ads for, these lenders in the phone book, nice. Innovative, research approach but. Beginning in 1999, the. Department. Of Financial Institutions here. In Utah required. Payday lenders to register, and therefore we have good numbers. And. You. Have to be careful, here. Initially. All they had was data on the number of registrations, but if a store had five outlets, they, didn't know that so, you're looking at the number of companies, more. Recently they now have the number of outlets as well but. I'm going to show you data on number, of companies, and then, the definitions, have changed, sometimes check cashers, we're included sometimes they weren't. Whether. Internet lenders, were included, back, in 1999, there were no internet payday lenders so again, it these, numbers are a, little bit tricky to compare. From year to year but I'm going to show you that and you're gonna see that non internet-based, lenders. Peaked in Utah in the year 2005. And all, payday lenders peaked in 2008. So that includes, the internet lenders and. Then there's been a gradual, decline since. Around 2010. And that's mirrored, a national, trend, so. In the last report, which came out in last, year the average amount, of a payday loan was about 400 dollars the. Fee range was. Between, zero which probably, wasn't too common, and, $27. For the loan the. Average APR, was, four hundred and eighty five percent and. When. Chris professor. Peterson did his research on the yellow pages back in the year 2000, the average interest. Rate was five hundred and twelve so, it hasn't really come down very much. Loans. Paid in the average amount of time to pay alone was 31 days so that's only one, roll over but, for every loan that's paid off after two weeks there's another loan that's paid off in six, or eight or ten weeks, the. Number of loans reaching, ten weeks and that significant. In. Utah, in that last year was 45,000. Now. Why is 10 weeks significant. Because, lenders can't charge you interest beyond. And weeks that, stood, well a law that was passed a few years ago the. Value, of the loans reaching.
10, Weeks in Utah was almost was, eighteen. Point. Five million, dollars, so a lot of people are reaching that maximum, and the. Number of lawsuits that, had to be filed to collect was three, point three five percent of, all loans not. Three point three five of these, forty five thousand. So. We do have pretty good data on Utah the state of the payday, industry. Now. As far as the regulatory landscape, we. Have layers we. Have the federal the state and the, local level the. Primary, regulator has, been States and, that's been true in Utah's well in. Some. Places including. Utah cities, have gotten involved and very. Recently, the federal government, has attempted to, set rules for the payday industry, and I'll say just a little bit about that. We. Have got local state. And federal. So. As I mentioned the states have been the primary regulators. Local, governments, to the extent, that they have not been prevented. By States because. Many states don't allow localities. To regulate or narrow the ways in which they can regulate. And. Then, as I said the federal government, is, poised, has been poised to act, with. Respect to the payday lending industry but. With the change of administration everything's. Come to a screeching halt you, can see here back in October, the. Headline was CFPB. The Consumer Financial. Protection Bureau. Finalizes. Its rule on payday lending or, payday traps and this. Was a rule they had been working on for six years. But. Then in January, with. A new head of the CFPB, Mick, Mulvaney, the. CFPB, says it was going to reconsider, the rule and, has essentially, put it on hold and, meanwhile. At the CFPB they've, become much more, lenient with respect to payday lenders, including. The. Dropping of several cases against, individual, payday lenders, for deceptive practices. There's, a lot of controversy regarding this because Mick Mulvaney when he was a congressman and was getting a lot of financial contributions. From payday lenders so. It's unclear whether this, is motivated, by a sense that the case was inappropriate, versus returning. A favor, but. I'm not gonna get that's a huge story I could spend the rest of time on that as. I mentioned the states have been the primary regulators. Of payday lending and there's. Been a large amount of variation, in the extent to which payday. Lenders have been controlled. We. Have on the one hand very restrictive. States these dark brown ones mostly in the East but, also, in Arizona, and Montana where. Essentially, these lenders, aren't, allowed the. Restrictions, on them are so strong that the industry says it's not worth it at the, other end of the extreme, we have the, permissive, states and that's where Utah would fall. And. In between we have a few states that are they, call hybrid, that. Have some rules some, fairly strong rules, but, not as strong as these. Most. Restrictive, states so there's a lot of variation, by states and, this. Is a map, of states. That are basically, the ones that are the most restrictive, and they call themselves payday. Freelander yeah because. You basically don't, find payday lenders, in those states in some case the main, technique for restricting them is to set an interest rate cap on them so. If the typical, interest rate in Utah is four hundred and eighty five percent per year and you, have a state government the steps in and says the limit is going to be thirty six percent interest which sounds pretty high right, but. If you say 36 percent interest it's not going to be financially, feasible for a payday lender to operate and so they will just close their doors that's. The main technique, by, which states become, part of Freedland eeeh. Coming, back to the utah part of this story as i mentioned in 1999. Was the first time we had a state law with, respect to payday lending and it was relatively, weak it basically said if you're gonna do business here as a payday lender you got to register with the state didn't. Say you have can, only charge so much interest, or you can only rollover the loans a certain amount of times it was just says tell us who you were, by. 2010. The laws started to get stronger, in. 2010. A law was passed that said you can't collect interest beyond 10 10 weeks as I mentioned earlier in, 2016. The law set you have to check the borrower's. Ability to, repay. The loan now. You would think that that, you wouldn't need a loan a law to tell a lender, that you need to check whether the person can repay the loan but. The payday business. Model, is essentially we don't care because if you pay us enough interest, that. Pays the look that pays us back that's enough for us to make money and, so we don't even want, to know whether, you can pay back the loan and so they said no no we don't want loans extended to people where we know going in that they can't repay it that was Utah law and, also.
This You. Had to give a person, an interest-free extension. Of the loan before you could sue them so. 10 weeks you can't stop you can't. Charge. Any more interest and then that has to that, has to be in existence that period of interest-free, payments, has to be in existence, before you could sue to collect and then, most recently in 2017. The, law said that if you take out a payday loan you get 24, hours to change your mind. Sometimes. People, go in they get the loan they're so desperate and then they get home and they say this. Was a really bad idea and, so. The law says if, you decide that within 24, hours you. Get to go back and. Cancel. The loan as though it didn't exist. And. Then, this, is a big one a limit, on people, taking, out a new loan after immediately. Closing another one because, what do you do if. You reach the 10 10 week limit right you. Know and so, the lender can't charge you any more interest, but, you're not able to pay back the loan you know that the lawsuits coming down the pike what do you do you, go to another payday lender, you, take out a loan for the amount you owe you. Pay off the first lender, and then you started another 10 weeks and so. The law said in 2017. I can't, do that. One. Thing we don't have are any, limits, on the, fees or the interest that can be charged for a payday loan. The. Main a state, legislator, who's been active in this area is Brad. Da who was a Republican from Orem and he's. Been the main anti, payday loan champion, in Utah, in the last few years he. Began in 2011 by introducing, a number of bills with respect to payday lending, none of which passed. But. That was enough to tick off the payday lending industry and so. In 2012, they, contributed, a lot of money to, unseat, him they. Took out anti. Bread ads. Deceptive. Ads so that he would lose the election in fact he did and a. Lot of this was facilitated. By now, disgraced, Attorney General John swallow. Here's. An example of an ad what do, they took out against. Brad dog now, you know in Utah, President, Obama is not the most popular person in the world right, and. Obama. And Obamacare, right, not the most popular social program so. What do you do you connect Brad DAW and Obama they, had no connection, Brad, DAW was, not only not, in favor of Obamacare he introduced, some bills in Utah that went against Obamacare, but, if you want to tar somebody, right in Utah, you associate, them with Obama and Obamacare so these fliers were distributed, with. This with this money to. Unseat, Brad dawn it was successful, but, after. 2012. Brad, swallows, not. Brad swallows john swallows, connections, to the payday industry, came out as I said he was disgraced he was you know he was indicted. And. Brad. Das looked, a little bit better and in 2014, he was reelected and then in 2016 and 2017 he, introduced, the bills that I already described, to you so, that's basically.
An Overview of the state my research is focused on the local level at the city level and, as. I mentioned, cities. Can only act. To the extent that state law allows for example. The state of Utah says no. Local. Entity, may, set a restriction, on the interest rate of a lender, if. There's going to be a restriction the. State's going to do it. There's an exception to that Texas, but we're not in Texas right now, so. The look local, governments, can only operate within, the, area that the state permits and that's. Generally, to use their power of Zoning, zoning. Is is a local, phenomenon right you. Don't talk about zoning for the state of Utah you, say West Valley City has zoning laws Salt Lake City has zoning, laws Ogden, they all have their own zoning, laws and. So that's how local. Governments can, restrict payday lending they. Can set a restriction, on the density, of them they, can say will only allow say, one, payday lender, for every 10,000, people in our city or, one, for every 5,000, or one for every 25, but that's using zoning, or we can set numerical. Caps, for example the city of San Jose which is a large, city said. We're not going to allow more than 39. Payday lenders, how, did they get that number when, they passed the law that's how many there were in San Jose they. Say we're not going to allow any more than we have now and if, a company goes out of business. You. Know there may be one that will come back in but never any more than 30 and on another. Technique, of zoning is distance, buffers so for example here's two different variants. Of it one would be a thousand. Feet between. Any two payday lenders, so. That essentially. Limits, how many there can be another. One is nope any lenders, within a thousand, feet of what, a. Church. A school, a, residential. Neighborhood, any of the above so. Again those tend to restrict how, many you're going to have and then some zoning, laws will, also specify, store, features, like, a warning, sign in the store that talks about the dangers of getting, in too deep with a payday lending you can do that with zoning as well. So. That's how local, governments have, operated, two good examples in, Utah or West Valley City I'm going to say more about them they. Were essentially. The first in Utah 2002. And they had a 600-foot separation, between.
Payday. Lenders is that very strict, no why. Not. Yeah. Two football fields you could have a whole lot of them but, it was a start it was a way to say we want to restrict them and also, one. Per every 10,000, residents that was more binding right that has a more grip, right if you've got a hundred thousand people in the city you can only have ten no. Matter six, hundred feet so, that was the key part of their law in salt. In 2009. And there were many cities in between, Salt. Lake said. Stores can't be within. A half a mile of each other that's. A lot stricter right that's not six hundred feet that's a half a mile and so. When you tell the laws tended to get stricter over time but West Valley was really the path breaker. And. So, I'll say a little bit more about that because they did a study where I compared, payday lending at the local level the, restrictions, on pay the eleven eight in, Utah, California and Texas and it. Was based primarily on archival, research as well as interviews, with. Activists, journalists, City Council members and opponents, payday, lending it. Representative. The payday lending industry and, the. 35 in-depth interviews, and this was funded by something called the Silicon, Valley Community. Foundation, in California. The. Story in Utah focuses. On two. People named Peterson, both. From, West Valley City one. Is Chris Peterson, Chris, Peterson, is a professor of law at the University of Utah. He. Went to he was undergraduate, at Utah he. Went to law school at Utah you, guys could do it too. When. He was a senior, in college. He. Needed money and he's, looking for a job and he went. To work for a payday lender in. Collections. And, he. Was so turned off by what he found that. When he went to law school he, dedicated his law career to working against payday lending. Now. That in itself would have probably resulted in a book and not really much action however, Chris's. Mother, Margaret. Peterson was, on the City Council. Of West Valley City and, he. Said mom these. Loans are really, awful, you oughta, do something, about it so. He got his mom look they look kind of like don't they he. Got his mom to introduce an ordinance in, West Valley City the, one that I described, to you before about. The space the distance limits, and the number per 10,000, which passed in 2002. And. The payday lending, industry didn't, fight, very hard against, this ordinance it didn't see it as having much impact on, their business and so, they. Did, a little lobbying, but not much and and the ordinance, passed as, it was proposed relatively, easily.
But. When West Valley City did, it what happened, payday, lenders, would set up shop in neighboring. Cities right so you set up your shop right across the border in Taylors Taylorsville. Or South Salt Lake City and so, what did the City Council's, there do. They. Said we don't want to be the dumping ground for payday lending, we. Know it makes our city look lousy to have all these payday lenders, right it looks like we have a lot of poor people we, don't want them all over the place so what did they do. What. Did they do for. Me. The. Same thing they. Passed their own laws and, so. West Valley City set, off this, cavalcade. Of anti. Payday lending ordinances, including, the one in Salt Lake City that I mentioned, in 2009. And meanwhile, similar, things were going up people, in Ogden, etc, were picking up on what West, Valley City had done as well. So. Having. Looked at Utah, California and, Texas a number of themes emerged. One. Was the need for an, inside, champion. By inside, I mean inside, the city council right it's. Tough to get the city council, to take an issue seriously, unless somebody, inside, of it becomes, a champion for that issue and that's true of our any issue in. The case of West Valley City we, had the Petersons, especially, Margaret Peterson. But. In other Salt Lake City entity. Other jurisdictions. For. Example, where's Jo Ann saghini the mayor where she just stepped down Midvale. Anyway. Yeah mid ville anyway, she became an anti payday line advocate, and, so you need somebody inside to kind of lead the charge but that's not enough you need some outside support, and in, Utah an organization, called cork which, is the coalition, of religious, communities, which. Has members from, all across the religious spectrum in Utah they. Saw this as a moral, issue and they would show up at City Council, hearings. And say we, support, an ordinance to control payday lending they. Would generally bring with them people, who had taken out payday loans. And had negative experiences and, they would tell their stories, at the City Council meetings these. Would be powerful in and of themselves but, they would also tend to make, the payday lenders, less likely, to want to get up and say no our products are great right, after this person said this product wrote me into bankruptcy. So. First, borrower, story's, very, important, in the in the political process here. Secondary. Effects, argument, what I mean, by that you would think that the main argument, you would make against, payday loans are these, interest, rates are ridiculous. Right there.use. Aureus, how can you charge someone, for five, hundred percent interest, on a loan, well. If. You're a religious, organization that's. Going to probably carry, some weight for you because you know there's used, the concept of usury it was ultimately a religious, concept, the idea of excessive, interest. But. From the point of view of city leaders, that you. Know there are a lot of moral issues there are a lot of things that pull on your heartstrings right, so. What was the argument that carried the day for them it. Wasn't the primary, effect. Of the loan on the borrower. That, convinced, them to pass these ordinances it, was the secondary. Effect, of having lenders, in the community, on the perception. Of your community, as well. As crime, as, well. As blight, and so. They turned it they turned it into an economic argument not, for the consumer, of the payday loan but, for the community that, if you want your community like West Valley City to, not be perceived as a poor, area you don't want to have a payday lender and you don't want to have payday lenders because they bring crime in they bring in the. People, not maintaining, their buildings and so, it's an economic, development. To, all to restrict payday lending and that city leaders they. That's the language they could understand, and, then. Finally, the. Media especially the newspapers, in Salt Lake City. Were, very supportive of the activists, efforts, to reduce payday lending and here's, just one example. This. Is a Bagley. Who's, terrific. Cartoonist, here for the Salt Lake Tribune and here's, an example of one of his cartoons where, he's saying you know payday, loans bad. News and so, the pay the the media are really important, because otherwise, the. Campaign. Is always oh you know a small group working, with City Council, and if it's just at that level the, City Council is generally going to hear from the businesses, involved and say well we create jobs we. Pay taxes, you, don't want to restrict us but, once you bring the media and then it becomes more of a public battle and.
Then It becomes, more emotional, and then the City Council leaders have more they, feel more pressure to act. So. Activists. Can. Extract lessons, from what was successful in, getting these ordinances, passed but. Also there are lessons for, businesses, and in. Utah the approach, has been buy time with a slow surrender, basically. You saw all those different laws and those aren't even all of them we haven't the, state level in Utah is to. Say okay, we're. Willing to compromise we, see some issues here we were willing to make some small changes and so that's happened over the course of of more, than 15 years in Utah, the, industry, is said okay we'll make some will, support, some, small changes at the state level and we'll even support, some, levels some changes at the local level as long as we're grandfathered, in right, as. Long as any new ordinance, doesn't kick us out, we're okay with that in fact we actually like. That. Y-yeah. You can't bring any new competitors. So. There's been this kind of soft surrender, by the industry, at the state in the local level and it's probably a pretty smart approach as I. Mentioned Earl earlier, they tent the the payday lenders tend to lay low at City. Council hearings, and try to work throughout. A lobby in. Behind-the-scenes, because. Anybody can make an appointment with a City Councilmember right so. You're, not going to look good you may even get booed at a city council meeting, but. You can that doesn't mean you can't lobby and, you do avoid, sleazy, allies. Like John swallow who, make your industry, look bad because of your association with him and, be. Prepared for change payday. Lending has changed a lot since, it began in the 1980s, a, online. Lending. How does that work. Where's. Where's the lender based. Or. Out of their house yeah but the house could be anywhere right, penny, lenders, can be based anywhere, once you go on the internet but. They began in the 1980s, there was no internet, and so. Locally. Based companies, like cash City they. Are competing, now not just with other. Brick-and-mortar. Payday, lenders but also internet, lenders and then. In just the last few years, you've got the emergence, of the FinTech industry. These, are lenders, again operating, entirely over. The internet but, with a different, model than payday lenders of these high-cost. Short-term, loans. They. May be offering, loans for, six months and installments. There's. One company that starts. You with a very high interest rate and if, you pay back your loan they. Will offer you a new loan the next time at a lower interest rate if you pay that back they'll, offer you the next loan at a lower interest rate there's. Another company that if you will take a consumer, education course online before. You take out the loan they'll give you a lower interest rate than if you don't so. There are a whole lot of new companies they're coming in to fill this space because it can be very profitable, even. Morgan's and not me giving Morgan Stanley even Goldman. Sachs has, now got into this area of FinTech of trying, to lend to people with not so great credit ratings but, with financial need and, so, things are changed a lot for the payday industry, and you, can see in this headline from just last December, one. Of every four Utah payday loan stores, closed. Last, year why. Because of this comp from the internet and the competition, from these new types of lenders. So. A final lesson set of lessons not for consumer, activists, not for businesses per se but for our society, is one. We need to offer better financial, education. We. Need to help people use, the money they have more wisely and when, they do get into tough, situations to. Make best possible, decisions, we. Need to develop better alternatives. For people who. Are faced with either, buying drugs for the kids or keeping the lights on in their home or paying their rent we're fixing their car so they get to work right so, that. They don't have to go to a payday lender, so. There are other alternatives that, are less expensive than paying three four, or five hundred percent Interest and then.
Ultimately We, have to work toward creating a situation where, people, face fewer emergency needs, where. We give people you, know better pay that better jobs etc, and. That's obviously a gigantic, agenda, which includes the education, and, so, if we're going to really deal with the problems, that payday loans tend to address. We, need to look at these three things better financial, education, better, alternatives, for emergency, situations, and fewer emergency situations. The. Question, was what, kind of secondary. Effects what kind of crime. Is. Associated, with a payday lender and why, so. There's you know the there's. Direct effects right but there's, just money it's going to be out there right and these, stores themselves, carry, a lot of cash right. But. There's the indirect, effects of a store, being in an area and what, that says about the area and the other kinds, of businesses that tend to locate there like liquor stores right, or, massage. Parlors, etc, and then all of a sudden the kinds of people were hanging out in that neighborhood other ones are more likely to commit crimes so. It's, not always a direct cause-and-effect it's. It's a it's a more complex problem but there's been studies that have looked at neighborhoods with payday lenders and without, petty lenders trying, to hold constant other factors, and the, ones with the payday lenders tend to have a higher crime rates and again that's the kind of argument that speaks to a city councilperson. Who. Regulates, the online lenders, that's a terrific, question and it's, very very hot right now. Some. Of them create. Partnerships, with Native American, tribes, where, they have no, interest. Rate limits or whatever and they operate out of Indian, reservations, that's, one way so they're not regulated at all another. Method is, you. Form a an. Alliance with a bank that is, regulated, by the federal, government, which, has no regulations.
Right, And so. Even. Though you may be operating. In a particular state, you have a relationship, with say. Let's, say you're a Utah company and you have a relationship with a bank in Delaware, which has no interest rate caps for any loans right and so, that's, technically. Who you're getting your loan from this bank in Delaware even though it's really the payday lender here and that's, another way to avoid regulation, so there is, you. Know there's this limited, zoning, at the, local. Level some, states are, pretty tough some. Are more lenient but. There's no federal regulation. At all and there are lots of ways of getting around being. Regulated, what. Made me it just didn't pay Allowance my. Interest for. 40 years now have, been in whatever consumer. Issue has been hot. Whether. It involved, you know auto safety. Or. Trying. To think of something non-financial. Utility. Rates, financial. But not like loans. And. Payday. Loans became a, big, issue beginning in the 1990s, and. People. Organized, that the local and the state level to do something about them the, first state to regulate the first states where Georgia and North Carolina nowhere, near here but I noticed, that and that entered into my teaching. And. Then, I became interested in the Consumer, Financial Protection Bureau. Which, was created, as part of the dodd-frank financial. Reform. Act. Of 2010. Hopefully. You've heard of it is huge, hugely, important, law that was trying to deal with some of the causes of the financial crisis. Of 2008. And so. The Consumer, Financial Protection Bureau, was created in 2010. I wrote a book about how that happened, and then. I was following, the Consumer Financial Protection Bureau and what. Are the issues that became, priorities, for them well the first issue they got involved with was mortgage lending, that. Was essentially, the main argument, that people made about why we needed a CFPB. Is to talk about all these mortgages, that were issued, from, roughly around 2000, and 2002, 2007. That, people, didn't, understand. Loans. Where you didn't have to pay back interest, as. People got into this friends a yellow that I've got to buy a house, now or I'll never afford one and housing, prices are only going to go up so it doesn't matter and, they took out adjustable, rate loans, this started off really low and then reset, the levels.
I Couldn't pay so that, was the first thing that the CFPB, focused, on but the second, thing they focused on was payday lending, because. For years consumer, advocates have been saying federal, government, you're not doing anything, with, respect to the CFPB look. At the with, respect to payday loans look. At all the people whose lives have been negative, impact by impacted. By these loans so. I was interested to see what, they were going to do and. In, 2011. They started, they were brand new and they said we're going to hold hearings on the, problem of payday loans and all around the country take, input, and as I mentioned it took them six years, to come up with, a final rule at. The end of 2017, and so I was watching what the CFPB was doing and. They actually wanted to study that but. I went to this foundation in California, and I said would, you like to fund a study of this and they said not, really, what we're really interested in is the local, laws is. It ok you want to pay me to do is that study I'd be happy to do it so that's the honest, answer I was always interested, in in payday. Lending, because I was. Included in my classes, since the 1990s. As an example of a consumer, problem. But. It wasn't until this foundation, in California, which by the way gets primary. Fire its major down donors, mark zuckerberg. Because. Most of their activities, take, place in the Bay Area which is where Facebook is located, but when they said to them out to me we're not interested in what the CFPB does, we're, interested in what the local, governments. Are doing because that's what we've been trying to push I said. Okay I'll do that study and they wanted me to do the study just in California, because. That's where they operate and I said okay. I'd be happy to do that but how much can we learn from one state we need to be able understand, how it compares, to other states, so, I said how about a state like Utah has been very active at the local level but has a totally, different political, climate, than California right much more conservative it's, easy to understand, why local governments, in California. Would, clamp down on payday lenders, right but. What about conservative, Utah I said, okay I'll, do that and then I said well what about Texas, they're the one place where local governments, can set interest rates how'd, you like to have a comparison, of that they, said okay let's, stop there and that's how I ended up doing this study and what and how he learned about payday lending in Utah again I'd always been following, it through the newspapers, but I hadn't studied it long. Answer to your question, one. Of the things that makes me proud to be a Utah is our state requires. School consumer, education and, most. Of you have gone to high school here now maybe it was a joke and you took it online he didn't learn much about it right but, not, every state requires that, you. Talk to its credit, it, has. That law that says we need to provide some education in, high school before, people get in trouble later on in life and, there, have been many studies of.
Financial. Literacy in each individual, state not many but several studies that have compared, state, by state and Utah's, always, at or near the top in terms of financial knowledge so that's very important, but even when you know what a payday loan is and how dangerous they are is you know they can be useful no question about it but they can also blow up in your face. You. May be so desperate that it's, your last resort, you've, already asked your friends for a loan they've said no. You. Know you don't perceive. There's anywhere else to turn and that's. Fine it's good that payday lenders are there for that situation, but. It's very rare that a person at the end of the two weeks is going to have enough money in their checking account to, pay it off and so. The fee gets levied and a new loan is issued and then they're paying again and again and after five. Or so, rollovers. You've paid as much an interest as you, took out in the loan and you haven't made a dent in the loan at all. So. Yes, education is, part of the answer, of. Course well any business is going to try to go click, go close to there there the, comment was that payday lenders and know, where their potential, customers are in fact. 10. Years ago, there was a study in Utah where are the most payday, lenders, it. Wasn't in. The, western part of Salt Lake City it was outside, of Hill Air Force Base. Where. You have a lot of people who, don't have a lot of income you don't have a lot of financial education, who. Make fit you know they want to have a car and then, they get into trouble and they go to the payday lenders and that's. Despite the fact that there are rules, limiting, the interest that payday lenders can charge to, members of the military that's despite, that fact so the comment was you see that in any anywhere, in the country around, military bases. These. Are kind, of disconnected. The fact that in our department, we address problems. Of low-income, people and high income people and everything in between a, CFP. Is generally, is going. To serve someone with some assets it, doesn't have to be a lot of assets. Right in fact a lot, of CFP, focus, on young people and then they build they get them as clients when they're young and then as their assets. Grow they they help them and then the payoff is when the person retires and then they manage their income for, the rest of their lives right, so. People, who are don't. Have enough money to save, CFPs. God can't, help them right, see a piece don't provide. Guidance. On how to use your credit card there. About how to protect. The assets you have through insurance, how, to build your assets, by smart investing. How, to spend down your assets in retirement in a way that your money won't run out before you die that's, what a certified, financial planner, does there are other people financial, counselors, we. We, have program, for that in our department as well who, tend to work with people who have very small amounts. Of assets or no assets at all but. The CFP, is tend of a focus on the side of the people, those. People who have assets, and are interested, in building significant. Amounts of assets. Because. Generally, they're going to be paid in two ways some combination, of commissions. Which, used to be the main way in which they were paid. And. Secondly, based, on a percentage, of the assets, under management and, that's increasingly. The way in which CFPs, are paid that. If you have a million dollars that you're investing, with someone they get 1% of that every, year that's, $10,000, they. Have an incentive, because. If your assets grow what happens to the amount of compensation they get it goes up it aligns. Your. And your best interest as a client and their interests. As a professional. Whereas a commission, generally, you get that when you make the sale and then you don't really care what happens after that and so CFPs. Used, to be primarily paid based on Commission now, their product primarily paid on assets. Under man, management, but again there could be some combination of, that so. The question is it. If we know that the that penny lending is rooted, in poverty. Not. Necessarily the cause right but takes advantage, of why, are have we not seen more action at the federal, level, that's. A great question because that's, what the CFPB has been trying to do over the last few years. And. I won't name. Names but, I called up one of our local. Congress. People and. I said you know, introduce. Myself and what I knew about the industry and said I think, that what the CFP D PB is doing is great because it was beginning to look like maybe the CFPB, was going to back off and, the. Chief. Of staff of this Congress person. Said. The Congress person, does not believe in federal, regulation, of loans that.
People Should be able to make their own decisions, about what's, good for them and so. That's an ideological. Reason you, could maybe say it's based on campaign, contributions or, economic, self-interest I don't know that but, there are a lot of people who feel that the less regulation. Of financial, transactions, the better and don't, want to see the federal government involved. And want to leave it to the states and. Or. The localities, I'm, on, the board of the career Frederick fair. Credit foundation where, we do send interns and some people who work there now so. It's, all interconnected there are a lot of good, opportunities for you. You.