There are some issues that are so emotional that even financial reporters can’t get past their feelings and instead focus on the facts of the free market. In this case, it’s a really great financial journalist named Herb Greenberg on CNBC. I’ve been a fan of Mr. Greenberg for many years, ever since he cautioned investors to beware of “Iomega Insanity” – a storage company stock in the grips of buying momentum. He was right. The stock plummeted, and he saved me a ton of money. He’s been ahead of the curve on many stories and deserves tremendous praise.
So I was surprised to see him trot out the same old arguments regarding payday loans the other day. Mr. Greenberg sees a triple-digit APR, considers it usurious, understandably feels that those who use the loans are being overcharged, and takes a firm stance against the product.
But that’s like rendering judgment on an ice cream sundae after only eating the whipped cream. Mr. Greenberg let emotion get the better of his journalistic instincts – namely, to learn the whole story.
Here’s the whole story, in a nutshell, with resource links:
There is a need for short term credit. Payday loans are neither the most nor least expensive choice. Each choice carries its own risks. Customers choose the product based on the flat pricing signal, not APR. The industry is significantly regulated. All loan terms are fully disclosed with complete transparency. Ninety-Four percent of all loans are paid back on time. The product has a 90% satisfaction rate. States that ban payday lending make matters worse for consumers.
Just so I can beat a dead horse, because it never actually seems to die – nobody uses APR for short term credit decisions. If you bounce a $60 check, you’ll get hit with a $30 NSF fee and a $30 merchant fee. But the bank will cover that overdraft for you. That’s a loan, folks. If you deposit money the next day into your bank, that loan has been extended to you for one day. Do you say, “Rats, I just got hit with a 36,500% APR”? No, you say, “Rats, I just got hit with $60 in fees”.
The resources to research payday loans are ubiquitous. There are tremendous amounts of data available that make an airtight case in favor of the product, yet Mr. Greenberg chose to let his own bias push this story to the same place his peers rush to – condemnation of a free market product that has tremendous customer support and satisfaction. If payday loans are so bad, then come up with something better to push them out of business. Nobody ever has, and that’s because the product works. People return to use it because it works for them.
You would never see a financial reporter opining on a moral issue when discussing any other company, with the possible exception of tobacco or when outright fraud is being perpetrated. Yet this one product gets slammed all the time. If financial journalists let their emotions supersede their mandate to research the facts and to present a balanced story, or worse, ignore what they are being told by someone who knows, then it’s time to overhaul this sector of journalism as well. While I was thrilled at Rick Santelli's legendary on-air rant that launched the Tea Party movement, I simultaneously felt he crossed the boundary of journalistic integrity by extending the explanation for trading patterns into an op-ed.
I’ve privately corresponded with Mr. Greenberg to let him know my dissatisfaction, and it's a courtesy I provided him because he’s one of the best. He owes it to his audience to be fair. The last thing we need is for financial journalism to sacrifice its standards.