Payday Loan Users More Likely Than Non-Users to Oppose Government Limitations; Consumer need and rationale misunderstood by regulators

By 22 Point Margin, Payday Loan Users More Likely Than Non-Users to Oppose Government Limitations

Consumer need, rationale misunderstood by regulators

SPARTANBURG, S.C., March 25, 2015 – More than two-thirds of payday loan users oppose government restrictions on the loans, according to a new national poll.

Sixty-nine percent of respondents from households that have used payday loans in the past agree that “you should be able to decide how often you take out a payday loan and not be limited by government restrictions.” Among respondents from households that have never taken out a payday loan: 47 percent agree; 47 percent disagree; and 6 percent say they don’t know.

“People who have no need for payday loans too often lead the charge to eliminate them,” said Jamie Fulmer, senior vice president of public affairs for Advance America. “American taxpayers – including the 25 million middle-class workers living paycheck-to-paycheck and unable to manage financial shock^[1] – don’t want the government to limit their access to credit when they need it. Their rationale is little understood by many elitist policymakers and government bureaucrats who are on an ideological crusade to eliminate small-dollar, short-term credit products.”

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Overall, a majority of respondents who have used a variety of alternative financial services (including payday loans, auto title loans, pawn services and non-bank installment loans) oppose government restrictions.

The survey was conducted from March 19 to 22 by KRC Research using two probability samples: randomly selected landline telephone numbers and randomly selected mobile (cell) telephone numbers. The combined sample consists of 1,009 adults (18 years old and older) living in the continental United States. The margin of error is +/- 3.09 at the 95 percent confidence level.

The findings affirm the results of a Harris Interactive Survey of payday loan borrowers, which also found strong opposition to government-imposed limitations on access to credit. The Harris research showed an overwhelming majority of payday-loan borrowers were satisfied or very satisfied with their recent experience (91 percent), carefully weighed the risks and benefits before taking out a loan (93 percent) and value having the option of a payday loan (95 percent).

Payday loans are unsecured, short-term loans typically due on the borrower’s next payday and involve a simple, flat fee that does not compound interest; they are used by a wide cross-section of American families. The average Advance America customer is 43 with a median household income of $56,228 (compared to U.S. average of $50,046); 56 percent are homeowners and 94 percent have a high school degree or higher (compared to U.S. averages of 65 percent and 85 percent, respectively).^[2]

Customers choose payday loans as a cost-competitive, well-regulated option for meeting short-term financial needs and unexpected expenses. The typical cost of borrowing $100 from a regulated payday lender is $15^[3], compared to $25 for a $100 online loan^[4]; the average credit card late fee of $27^[5]; the $34 average bank overdraft fee^[6]; or the $46.16 average utility late/reconnect fee^[7].

The Consumer Financial Protection Bureau’s (CFPB) this week is scheduled to conduct its third field hearing on payday lending as it seeks to formulate federal rules governing short-term credit. Advance America urges the CFPB to establish clear and consistent guidelines and disclosures for all of the products and services consumers use and view as comparable. Rules that treat short-term lenders, banks and other creditors the same will foster competition and allow for greater and more consistent protections that enable consumers – not regulators – to pick winners and losers in the marketplace.

^[1]Brookings Institute. (2014) The Wealthy Hand-to-Mouth

^[2] Advance America demographics based on approximately 1.1 million customer records from January 2013 to December 2013; U.S. averages based on 2010 Census.

^[3] Advance America Company Data.

^[4]Consumer Federation of America. (2011) Survey of Online Payday Loan Sites

^[5]  Consumer Financial Protection Bureau. (2013) CARD Act Report

^[6]Consumer Financial Protection Bureau. (2013) CFPB Study of Overdraft Programs

^[7] Readex Research. (2006) National Data on Short-Term Credit Alternatives.