Fact: Payday loans and cash advances are a necessary alternative to banks
Fact: 12 million Americans take payday loans every year
Fact: Banks don’t like the competition, and work hard to shut it down
There is a constant stream of talk about “predatory lenders” who need to be fought, and uneducated borrowers who need to be protected. This talk comes from the world of traditional lending (banks and credit card companies), and also from the world of politics (who are largely supported and promoted by banks, credit card companies, and other businesses).
The big falsehood is that these people are trying to help people by shutting down the only way they have of getting a loan. It’s the Payday Loan Lie — that any alternative lender can’t be trusted, and only big banks should be used. Because everyone knows how trustworthy banks are. A new Harris poll of payday loan users has some refreshing information on the subject.
“Alternative lending” includes payday lenders and pawn shops, and any other source for borrowing money that isn’t a bank or credit union. The reason so many people use payday loans (in the market of $7 billion last year) is because banks tend to be exclusive, and it’s difficult to borrow money from them (and it is impossible to borrow money quickly). To fill in the gap for Americans who can’t or won’t use a bank, there are alternative lenders. There always have been, and there always will be.
When politicians attack predatory lenders, what they really are saying is that consumers aren’t smart enough to decide for themselves. Payday loans have higher fees than bank loans, but to assume that a person can’t understand the terms and agree to them is prejudicial and wrong.
The latest Harris poll from the Community Financial Services Associates of America surveys over 1000 payday borrowers, and the results are conclusive. Regardless of what “reformers” might say, these borrowers understood the terms of the loan, agreed to them, and repaid the loan with no problems. There was no “cycle of debt” that kept a borrower enslaved to a loan for months and years.
What this Harris poll shows is that by and large payday lenders deliver what they promise, and that payday borrowers know what they are doing.