First, if 400-percent loans are so popular, why doesn’t Steve Forbes have one? And rational households get into debt traps often because they have imperfect information, unlike lenders, who do what they do for a living. This imbalance of information between borrowers and lenders is the same as that between amateurs and professionals in any setting. Is this complicated?

The economists also try to tie complaints to the Federal Trade Commission to a ban on payday lenders.

The most aggrieved defaulters will complain, and the tally of their complaints will register the financial shock like a simple seismograph.

But in the real world, any reporter knows that borrowers either don’t know what FTC is, or if they do, wisely don’t waste their time complaining to it. Consumers complaints as a seismograph? Does anyone believe that?

The working paper tries, moreover, to link increases in bankruptcies to state bans on payday lending. This strikes me as a bold assertion. Is it true? Maybe. Or maybe people go bankrupt for a lot of reasons.

It should be stressed that this paper has not been peer-reviewed. Why is this important? Here is how the paper controls, among other things, for changes in employment after payday lending bans.

DEP VAR = a + as + at + bUR + cGA + dNC + ePOST-BANGA + fPOST-BANNC + gGAxPOST-BANGA + nNCxPOST-BANNC + ε st.

I’m not qualified to say whether this regression analysis is valid, and neither is Forbes, and that’s the point.

In an opinion piece in The Wall Street Journal, George McGovern quotes the paper’s finding as fact that banning payday lenders leads to higher bankruptcy rates.

It may be true that taking away $300 loans actually drives people into bankruptcy. It’d be nice to know it was tested.

And it should be remembered this is an alternative view on payday lending; even the Fed economists acknowledge a broad consensus, at least among do-gooders and “government at all levels,” that payday lending is harmful. Forbes should have, too.

In contrast to this unpublished workpaper, Eakes’s research has been tested—by reality. Afer all, he was warning about subprime back when the rest of us all thought it meant cheap cuts of meat. Now look. And who was listening when CRL predicted 2.2 million foreclosures back in December 2006?

Forbes? The New York Fed? I don’t think so.

Turns out CRL was conservative.

That might be why the Fed just appointed CRL’s president to its Consumer Advisory Council, citing the organization’s “ground-breaking research,” while this payday paper is still looking for a publisher.

In any case, if Forbes want to take a serious look at payday lending, that’s one thing. But this story just drives by the topic to make the obscure point that opposing 400-percent loans is some kind of blemish. I don’t get it.

Forbes then goes further by implying that Eakes fights payday lenders to help his own organization. Eakes, you see, runs a credit union—Self-Help Credit Union—which has thrived by offering subprime borrowers loans that don’t charge 400 percent interest.

Who, then, really benefits from payday loan bans? Credit unions, for one, notes Morgan.

Oh, please. But it gets worse.

In payday-loan-free North Carolina Self-Help has thrived. Its assets have jumped from $114 million in 2003 to $292 million last September. Its return on average assets is 1.4%, reports snl Financial, versus the industry average of 1.1%. Terry L. Kibbe, a former think tank fundraiser who last year started a libertarian consumer advocacy outfit, Consumers Rights League, notes that Self-Help’s high delinquency rate—it’s seven times that of the typical credit union—proves that Eakes is as bad at judging borrowers’ ability to pay back loans as anybody else. Self-Help says less than 1% of its loans ultimately default.

Let’s unpack that paragraph, because nearly every figure in it is a manipulation.

First, Self-Help thrived long before North Carolina became “payday-loan-free,” which didn’t happen until 2006. So to imply that the credit union thrived because the state banned competition is misleading.

As for its high “return on average assets,” well, that’s a good thing, not a bad thing, as Forbes seems to be signaling.

Put another way, would falling asset values and a sub-par ROA be cause for praise in Forbes’s view? I doubt it.

I’m still trying to figure out why that quote from Kibbe is in there. What does the credit union’s high delinquency rate have to do with anything? The fact that only 1 percent of borrowers actually default means Self-Help solves problems. So what?

And a little perspective here: Self-Help’s subprime portfolio of poor borrowers is doing much better than the nation’s regular borrowers, fully 2 percent of whom—forget default—are actually in foreclosure.

And it pays to remember why the housing market is in such turmoil. It’s not because of Eakes, that’s for sure.

Forbes here is guilty—at best—of false balance, the everyone-must-be-a-crook school of journalism. But it doesn’t take a Columbia J-school degree to understand the moral difference between Eakes, who fought to head off the crisis, and the financial-services industry that caused it.

Likewise, there’s a difference between the Center for Responsible Lending, which has hard-won credibility on lending issues, and something called the Consumers’ Rights League, a heretofore-unknown, self-styled libertarian advocacy group quoted by Forbes. This ersatz “CRL” (same initials; hmm) popped up like a Jack-in-the-box just as the Forbes story ran, and appears to exist for no other purpose than to attack Eakes and promote the payday lending industry.

Again, investigating Eakes is not the problem.

But all these contortions point to a time-honored journalism principle: if facts can’t be found to support the premise, reexamine the premise.

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