Myth vs. Reality
Myths vs. Reality: The Truth About Cash Advances
The realities of cash advances are vastly different than the myths spread by industry critics. The following is a straightforward examination of cash advances to help separate fact from fiction.
Myth #1: Cash advances have unreasonably high interest rates.
Truth: An Advance America cash advance must be paid back within a relatively short time period. Unlike other financial services, the fee does not compound interest. We believe this product provides a proportionate remedy to meeting working people's financial needs. Advance America customers say they appreciate that a cash advance, with a one-time fee, can be less expensive than taking on the costs of bouncing a check, missing a credit card payment or neglecting a bill.
Myth #2: Cash advances trap borrowers in a never-ending “cycle of debt.”
Truth: The “cycle of debt” catchphrase is our opponents' attempt to portray our industry as taking advantage of people.
No one benefits from “capturing” consumers in a “cycle of debt“, and we work to prevent this from happening. That is why our centers and service representatives work with customers to make cash advances that match, but do not exceed, their needs. If a customer is unable to pay back an advance within the arranged timeframe, Advance America offers an Extended Payment Plan to allow customers a longer time period to repay at no additional charge.
Our cash advance product is a sensible choice for consumers who seek a measured and responsible tool for managing their cash flow. This is particularly true when it’s balanced against excessive credit card late fees and interest, high non-sufficient funds (NSF) fees and other punitive costs for missed payments.
Myth #3: Cash advance lenders prey on unsophisticated customers.
Truth: Nearly 90 percent of our customers have graduated from high school and over half of them have some college education. Ninety-two percent of customers think cash advance lenders offer a valuable service and 90 percent are satisfied with their understanding of the terms and costs of cash advances. Nearly half of our customers own their home, and our customers' median household income is $40,984. These statistics show that Advance America's customers are not the uneducated, unsophisticated people the industry critics seek to portray.
In fact, a staff report from the Federal Reserve Bank of New York found that cash advances are not a form of predatory lending—as Advance America opponents claim—but instead can help consumers by increasing credit. The report found that cash advance prices were lower in cities with more cash advance stores per capita, supporting the basic theory of supply and demand—the more options for people, the better deal they're likely to get.
Myth #5: The cash advance industry opposes regulations on the services they offer.
Truth: Advance America is a founding member of the Community Financial Services Association of America (CFSA), whose mission is to promote laws that provide substantive consumer protections and to encourage responsible cash advance industry practices.
And for more than 10 years, Advance America, along with the CFSA, has worked with state and local officials to craft measures that balance access to cash advances. With effective consumer protections, the Company helps to prevent the misuse of cash advances and jeopardizing a consumer’s financial health.
Despite the industry's compliance with the Truth in Lending law as well as its good-faith efforts to formulate reasonable regulations, some state lawmakers have sought to abolish our industry through the guise of "reform" regulation; some have proposed capping interest rates for advances. For example, a 36 percent rate cap translates to $1.38 per $100 borrowed, or about 10 cents per day for a typical two-week period. This is not enough to pay for basic expenses of offering the service, like wages, rent, utilities and supplies. Such rate-cap models overlook the significant cost of operating a regulated business, and would be an effective ban on cash advances.
