92% of Borrowers Choose Payday Loans Over Competing Credit Products
According to a new survey, 92 percent of payday loan borrowers had access to other financial resources when they chose to take out a payday loan. Contrary to the common belief that payday loans are a “last resort,” the report finds that most borrowers had a number of resources available and chose the service over products offered both by banks and other non-bank lenders. Their options included credit cards, overdraft programs, bounced checks, pawn, or installment or title loans.
“Consumers benefit when they have a range of credit options from which to choose,” said Patrick O’Shaughnessy, chairman of the Board of Directors for the Community Financial Services Association of America (CFSA) and president and CEO of Advance America. “This poll confirms what our industry already knows—for many consumers, a short-term, small-dollar loan from a regulated payday lender makes personal and economic sense.”
Since their introduction in the early 1990s, these small-dollar loans have come under fire from certain interest groups critical of their fee structure. However, independent research shows that payday loans are often less expensive than common, less-regulated credit products—including bank overdraft protection programs. A study by the Consumer Federation of America found that overdraft fees at the 14 largest U.S. banks range from $33 to $37 per transaction, often equating to an APR of well over 1,000 percent on a $100 overdraft—far higher than the average flat fee of $15 on a $100 payday loan.
According to O’Shaughnessy, consumers recognize that payday loans are often the cheapest alternative.
“Whether it’s deciding to miss a bill payment, bounce a check or visit a short-term lender, borrowers carefully weigh their credit options and choose financial services that will help them meet their obligations successfully and responsibly,” said O’Shaughnessy. “Regulations should not only ensure access to safe and affordable credit, but allow consumers to easily compare the associated costs and risks of different credit options.”
The survey, the first in-depth look at the borrowing habits of payday loan borrowers, was conducted by Harris Interactive and commissioned by the CFSA, the trade association representing storefront lenders.
“Payday Loans and the Borrower Experience” surveyed 1,004 respondents, ages 18 and older, who borrowed from CFSA-member storefront lenders in the last year. The full results of the poll can be found at harrispaydayloanpoll.com.