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Public Policy

On behalf of our customers and company, Advance America advocates for the continued availability of payday advances. Our product, when used responsibly, provides an effective short-term financial option for overcoming some of life's unexpected needs. We work with state legislatures to implement reasonable regulations, which are in the best interest of our industry and customers, while preserving access to short-term funds for thousands of consumers who need financial flexibility.

Advance America, and other responsible payday lenders, has worked with state and local officials across the country to craft regulations to address the small number of customers who misuse our product and put themselves in financial jeopardy.

As a leading voice in the industry, Advance America promotes high standards and responsible business practices.

Legislative Activity

Regulations and laws affecting payday advances are implemented on a state-by-state basis. When Advance America was founded in 1997, 5 states had regulations in place to allow for payday lending. Since then, 35 states and the District of Columbia have enacted legislation that regulates payday advances. We continue to advocate for the expansion of our product into other states.

The company 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 industry practices. All Advance America stores comply with the Truth in Lending law and provide full and upfront disclosure of the terms and costs of an advance. And we strongly support programs that raise consumer's awareness about financial literacy, and efforts to educate them about making sound long-term decisions related to their money.

Most of our customers use payday advances to help them cover unexpected expenses or to bridge a short-term cash crunch. Some state laws allow consumers to rollover advances, but most do not. Even where rollovers are permitted, Advance America limits them to four or the state limit, whichever is less. Restricting rollovers is part of the consumer protections that Advance America has established in an effort to ensure responsible, short-term use of our product.

Alternative to Payday Advances

Payday advances are one option available to consumers to help manage their financial obligations. Without the availability of payday advances and companies that abide by state regulations, consumers may turn to overseas or Internet lending services that operate largely outside of regulations. Responsible and balanced state payday loan laws are the strongest deterrent against unregulated Internet lending. Access to a local payday lenders afford consumers a valuable option besides resorting to faceless strangers for their short-term financial needs.

Payday Advances and Other Financial Options

Compared with the cost of late fees on a credit card or bounced check, utility reconnections (and even many ATM withdrawal fees), the flat fee of a payday advance is a reasonable and practical choice. In addition, unlike bounced checks and late payments, a payday cash advance is not reported to credit service agencies, so credit scores are not affected.

Financial Cost Fee
$100 Payday Advance $15.00
$100 Overdraft Protection $26.90
Credit Card Late Fee On $100 Bill $37.00
Late/Disconnect Fee On Utility Bill $46.16
$100 Bounced Check NSF/Merchant $54.04

 

Additionally, consumers pay about $22 billion in returned check fees a year, $11 billion in late credit card fees and banks collect about $10 billion annually for overdraft protection services. Credit card interest costs consumers more than $87 billion per year.

APR Caps and Fees for Payday Advances

Most states regulate the fee that companies charge for a payday advance by one of two means:

These two methods are the most appropriate way of assessing a fee on the payday service.

As required by federal law, we always disclose the annual percentage rate (APR) for our product. But we believe that annual interest rates are better used to assess the costs of long-term, high-dollar-amount loans like mortgages, small business loans or car payments. Since a typical payday advance is for just 14 days, the APR comparison seems to be a misleading one.

Some special interest groups artificially extend the typical two week payday advance to derive an APR of 391 percent. The only way for a customer to reach that percentage would be to take out the same advance every two weeks for an entire year. That simply does not happen. (A fixed fee of $15 per $100 borrowed equals a 15 percent interest rate for a two week period.)

These same interest groups want our industry to go out of business. They advocate a 36 percent APR cap on all payday advances, which may sound reasonable. After all, credit unions and banks can offer loans under a 36 percent APR. However, comparing the one-time fee charged by payday advance companies to APR is inaccurate. These loans are not taken out over long periods of time, and are of limited dollar amounts (less then $500 in most cases).

Advance America has a completely different offering than a credit card company or a bank, which charge interest on revolving credit or loans of a long duration. Our fees are more comparable to late fees associated with a missed payment to a credit card or a bounced check -- and our fees are less expensive than both of these options when paid on time.

If states were to impose a 36 percent cap that works out to $1.38 per $100 advanced for a two week period, which is less than 10 cents per day. The FDIC has estimated that the cost to originate and service the average payday advance is approximately $14 per $100. And the Federal Reserve has said that it costs small banks about $174 per month to service such a loan. A 36 percent APR cap would not be a fair business regulation; rather, it is an attempt to drive our company out of business through over-regulation. Payday advances will not exist if a 36 percent cap is imposed.

Demand for Payday Advances

The proliferation of payday advance storefronts is evidence of the strong demand for our product. We offer a product that many other financial institutions decline to offer.

A payday advance is designed for short-term borrowing by anyone with a steady income. We do not subject our customers to a credit check or take an inventory of their assets. Our customers often seek payday advances as a means of protecting their payment history and credit rating.

Advance America offers a simple financial option that gives an individual or a family some breathing room for a short period of time, and the means of avoiding the long-term negative consequences of missing payments to other financial institutions or the spiral of long-term credit-card debt.

The amount borrowed is based on a customer's income; the advance is relatively small and the duration of the transaction is short, so the ability to repay is well within the means of even people experiencing some level of financial strain. Customers are allowed to borrow up to 32 percent of their gross monthly income; this limit provides a level of customer protection against the temptation to borrow more than can be repaid.

Our customers have an open and active checking account and show proof of a steady source of income. Moreover, if a customer requests additional assistance, we will work with the person to pay back the advance without incurring additional fees. For example, Advance America offers an Extended Payment Plan for those who cannot pay back an advance in the timeframe of the original contract; the plan is disclosed to all customers and involves no additional charges.

Advance America has raised the standard of professionalism in the industry and will continue to provide a safe, private and dignified option for customers seeking short-term advances. In fact, 92 percent of customers say payday cash advance is a useful service. And state regulators report very few complaints out of millions of transactions.

Payday Advances for Members of the Military

We have the highest respect for the men and women of the military, and of the enormous sacrifice they are making during this time of war.

Some members of the military contend that payday advances and other short-term financial options may affect military readiness. While we disagree with the Defense Department's assertion, we are deeply committed to supporting our troops in any way possible and thus made the conscious decision to stop offering our product to them effective October 15, 2006. In doing so, we regret that they are effectively denied a valuable credit option and may have to resort to more risky financial options like additional credit card debt or bouncing a check that would adversely affect their financial solvency.

Advance America does not target members of the military. Before we announced our policy to stop servicing military personnel, our statistics showed that they represented less than 1 percent of the Advance America customer base and only 42 of our 2,728 centers are located within 1 mile of any military installation.