Many prominent researchers have examined the payday advance, here is a look at some key findings:
Efforts by legislators to regulate the terms of small consumer loans (such as by imposing price caps on fees or limitations on use) almost invariably produces negative unintended consequences that vastly exceed any social benefits gained from the legislation.
Payday advance lenders consider a borrower’s ability to repay their loan, and do not locate in the poorest neighborhoods.
The Urban League, as well as the Hispanic Institute issues studies recently detailing the need for short-term credit. The 2010 Hispanic Institute says: "The extreme policy of outlawing payday lending has had the most adverse impact on Hispanics and other low-income borrowers. Borrowers are significantly more likely to experience an adverse change in financial conditions after payday loans are prohibited."
A Federal Bank of New York Report finds that payday loan bans result in increased credit problems for consumers. The contraction in payday credit supply caused former borrowers to bounce more checks, thus aggravating their already marginal circumstances. To stave off bankruptcy, distressed borrowers pawned or sold assets. For those who ultimately succumbed to their financial problems, the loss of assets made chapter 7 [bankruptcy] the natural choice.
If the existence of payday lending is valuable for those facing personal disaster in a way that other financial institutions cannot provide, then regulators should strive to make access to finance easier and more affordable, not ban it.
Most of the "alternatives" are completely different products with different terms and different fee structures than payday loans. Many come with a variety of restrictions and complicated fee structures. As the GAO recently reported: "Recent statutory and regulatory changes and FDIC initiatives may encourage more institutions to offer small-dollar loan alternatives to payday loans or expand their availability, but many consumers may still chose to use payday loans for their wide availability and relative lack of eligibility."
To date, almost all of the attempts to create payday loan alternatives have either been charity-based, required government subsidies, unavailable to the general public, unprofitable, or unsustainable.
In fact, an FDIC two-year pilot program encouraged banks to offer small-dollar loans comparable to payday loans reported few banks participating. After the initial pilot program reporting period, a number of participating banks eliminated the payday advance alternative.
Managing household finances can be a daunting task. However, by using solid budgeting and savings techniques, you can accomplish major financial goals. In the Customer Resource Center, CFSA offers a variety of payday advance resources that support and encourage responsible lending practices, and highlight the vital role of our members’ stores in neighborhoods near you.
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Here you will find an aggregate of industry research, comprehensive data, and benchmarking tools from the short-term lending industry. They cover all payday advance business areas – consumer demographics, media hits, the latest policy initiatives, among others. Click here to access to the partner's resource library.
CFSA works at the federal, state, and local levels educate legislators and regulators about the role of payday advances in the broader financial services arena. This section provides resources for policymakers who believe in access to credit, want to preserve financial options and ensure balanced, substantive consumer protections. Click here to enter the Policymaker Resource Library.