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People who are born between the early 1980s and early 2000s are often referred to as the “Millennials”, Generation Y or the Millennial Generation – and they are turning to Payday Loans in huge numbers.

A new study now reveals that 42% of the millennials have turned to an alternative financial service, like payday loans. In fact, in the last 5 years, 28% of millennials who have at least college education have taken a payday loan. It also reports that 6% other millennials without college education is seeking these loans. And this number seems to be increasing too. They also discovered that 30% of them were overdrawing their checking accounts. The college educated millennials were found to be between the age of 23 and 35 years according to the results of the study.

The extensive study was carried out by the Global Financial Literacy Excellence Center at George Washington University and PwC jointly. It was titled “Millennials and Financial Literacy (pdf file)”.

Detailed analysis of the study revealed that millennials were struggling to deal with their personal finances, and turning to payday loans as this offered immediate relief. For instance, there was this person from Queens, New York, aged 31, who wanted to open a second jewellery store but had little cash in hand. He turned to a local quick cash provider as it was difficult to get a bank loan.

Payday Loan – The Only Realistic Alternative

39% of such people have bank accounts, and 35% of them are credit card users. In theory therefore, they should have had other options to get cash. In reality however, bank loans and loans from other conventional sources are often too complicated. It takes a lot of time too that many cannot afford. So that is one major reason why for too many of them a payday loan seems like the only viable alternative.

Myth Broken

There is a common myth about payday loans and such other quick cash schemes. It is said that only people from economically backward sections of the society, blacks, Hispanics, and Asians take these loans. It is also said that only those who cannot get credit otherwise will opt for a payday loan. This is clearly not the case according to the findings of this extensive study. The reality is that, a lot of others are asking for these loans as well. Anyone who needs quick cash is asking for them. And among them are those who can use banks and credit cards as well.

But the analysis may not be so simple. While disclosing the findings, co-author of the study and the PwC Charitable Foundation President, Shannon Schuyler said that misuse of credit cards and other findings were understandable and expected, but it was harder to explain things like the increased demand for payday loans.

Shannon says that there are many middle-class young adults who are taking a payday loan as they are struggling to make their way in the real world just after college. These people are not yet established in life and will often seek financial help from their mom and dad’s. They have got used to a certain lifestyle and don’t understand what things actually cost. Also, what happens if the parents aren’t able to, or cannot give them the money they need either in college or just after that?

There could be another factor as well. Some of them want to go for more education, but their parents are not able to support that. Many of them already have a big debt because of student loans. In 2013 for instance, 7 out of 10 graduates from non-profit and public colleges had an average student loan debt of $28,400. Plus, starting salaries aren’t what it used to be once. Low starting salaries, stagnant wages, and rising rents are making life difficult for them.

It isn’t easy even if you don’t have a student loan. You will still have to compete for fewer well-paying jobs. Price of everything, other than gas, is on the rise too.

Payday loans seem like the only respite, and they are naturally turning for them. They are able to get the money they need very quickly. It looks like the only resource. It makes sense too as the debt is just for the short-term.

Other Factors That Are Pushing Millennials Towards Payday Loans

One explanation that has been used to explain this trend is lack of financial literacy. The study reports that just about 24% of the millennials have basic financial knowledge. So Schuyler suggests that there should be financial literacy classes in high schools. But as of now, students are taking these classes in just 17 states.

Desperation could be another factor. The study indicates that many millennials don’t have adequate savings that they can fall back on during difficult phases. In fact, close to 50% of them said that they cannot find $2000 if they suddenly required the money. This however isn’t just restricted to the millennials. According to the findings of a Federal Reserve study, 53% adult Americans would be able to come up with just about $400 in a hypothetical emergency. Above this, they will need to borrow money or sell their possessions.

Are These the Only Reasons?

Some of this analysis could very well be true. However it might be inaccurate to just blame them for the rising popularity of payday loans. Lawmakers in different states have been trying to impose stricter restrictions on such loans for a while now. There has been a lot of bad press about them in recent times.

But their popularity still seems to be growing in spite of all this. So there are definitely deeper reasons. The payday loans and quick cash loans must be fundamentally right, at least by the public perception. Often, such a loan seems to be the only practical option for a lot of people as well, and they appreciate them.

Credit Score and Payday Loans

Another reason the millennials are going for payday loans is because of the fact that, the process doesn’t affect their credit records negatively like other loans. They are worrying that a lower credit score might impact their jobs or ability to get a mortgage when needed. Sometimes they will be turned down by the traditional lenders. And of course, the payday lenders don’t look at credit scores while approving the loan. This means someone with a low score can get the money too.

Many of those in their early 20s used to once believe that it was smart to avoid credit. Missing just one student loan payment has a greater impact on the credit score when you hardly have any credit history. Payday loans look like a good source when you have poor or no credit history.

Some critics have advised the millennial to take a second job, sell stuff, get into freelancing, save for an emergency, and other things to make both ends meet. But not everyone can do this. Finding a second job can be very difficult for most. Millennial have also been advised to seek financial help from family. That can also be a difficult proposition. Often, families aren’t able to help.

A payday loan is a small-dollar loan. Repaying this shouldn’t be a problem. The interest burden is also not too much as you have to repay after just a few weeks. So the ideal situation would be to take a loan when you need it and see off the first couple of years of your working career. Salaries are bound to improve in this time. You will then have more disposable income and lead a more comfortable life.

However you must apply for Payday loans with a low interest rate lenders. Our partnership with exclusive lenders across USA, who follow strict rules of the states will help you to get a low cost loan.

Apply for a low cost payday loan with us here.

Did you know that the largest banks in the country are registering huge profits by checking overdraft fees? This is forcing the country’s poor to “subsidize the rich”.

Often, those with a fund crunch situation need an overdraft. And quite often, these are the same poor people who would take a payday loan to ride over the immediate crisis. But while the payday industry faces criticism, the banks have largely been allowed to carry out their operations as they please. In fact, the banks have been busy actively encouraging people to get an overdraft, so that they can make a profit. For instance, in 2014, the banks raked in a massive $35 billion from overdraft fees.

If you don’t have $50, how can you pay an extra $150? This is a frustration and annoyance, particularly to those who already don’t have enough money.

Banks have been exploiting their customers for a really long time. Legislation has been passed to prevent this, but the banks have always found a way to manipulate the system, as you will find a little later in this post.

And yet, there is hardly any criticism of the banks, while you will see so many negative comments about payday lending, which is often the only solution for those who need the money urgently, and those from poorer sections of the society.

How Credit Changed

The way people borrowed money began to change after World War Two. Credit itself started to change with the decline of open-book credit (shipping of goods with the receiver’s promise of paying) and pawning. Other loan forms like credit cards, overdraft protection and payday loans replaced them. But everyone did not have access to overdraft protection. This was limited to only those who had high incomes but were facing short-term issues. But slowly, with time, more people were able to get overdraft protection. Credit unions and banks began to offer them during the mid-1990s, allowing their customers to overdraw their debit or checking accounts.

By 2003, according to a report, about 1000 banks were letting their low-balance customers overdraw their accounts, often by skirting credit laws, and by doing this, they were raking in billions of dollars as fees. So these banks were encouraging people with limited funds to spend beyond their means, just because they wanted to earn their fees.

The banks did this as the overdraft fee was a more stable income source to them, as compared to other products where the interest rate fluctuated. The FDIC carried out a survey in 2006 and reported that overdraft fees were 6% of the net operating revenues on average.

This worsened with time. Data collected by SNL Financial revealed that in the first quarter of 2015, Bank of America, Wells Fargo, and JP Morgan Chase together collected $1.14 billion from overdraft fees and other related service charges. And not just that, these same banks collected the most ATM fees too in the same quarter.

Other Issues with Overdraft Fees

There are many other problems with overdraft fees, which work much like credit cards and payday loans, but are worse. For instance, according to a Consumer Federation of America 2005 report, overdrawing the account was much the same as using the credit card, but with a key difference. With credit cards, the banks cannot take money from a customer’s bank account directly for paying the card debt. But those who overdraw their accounts using a debt card do not get this protection. That’s because, banks are allowed to set-off when a customer overdraws with a debit card and immediately after the customer deposits money into his account. What the bank can draw out also includes the overdraft fees.

The same report also discovered that often banks were letting people overdraw money while paying checks, thus leading to overdrawn accounts. This was in the form of allowing ATM withdrawals, making point of sale purchases, and pre-approved debits, though there weren’t adequate funds in the account. And of course, the banks weren’t informing their customers about better alternatives.

Citizens Bank’s for example, was promising “’convenience and peace of mind” while offering overdrafts to their customers on their website. In late 2004, they said that customers will incur a fee between $25 and $33 for each transaction depending on how many days the account remained overdrawn. However, they did not inform that customers had the option of buying optional savings account overdraft transfer coverage for as little as $3 each month, and that, they could also apply for overdraft protection credit that costs just $20 every year. Both these options were naturally more affordable for their customers and less profitable for the bank.

It improved a bit in 2010, with rules on overdraft fees coming in. Starting in July of the year, banks had to now allow their debit card customers to enrol for overdraft fees, instead of automatically charging anywhere between $20 and $30 whenever there were inadequate funds for covering a purchase. So, the debit card could now also be declined at the point of sale if there were inadequate funds.

How the Banks Began to Manipulate the System

But the banks found a way through fee manipulation. A federal judge asked Wells Fargo to pay customers in California $203 million in restitution for claims that transactions were manipulated for maximizing overdraft fees. That was in August 2010. This is what happened – instead of treating each transaction when it was received, Fargo arranged them in the largest to smallest transactions, and as a result, customers ended up paying increased overdraft fees.

But Wells Fargo wasn’t the only one doing this. Bank of America had to dish out $410 million for the same reason the next year. Forbes reported that banks continued manipulating their fees in their 2012 Consumer Financial Protection Bureau (CFPB) report. It was clearly spreading.

According to a 2013 report by The Center for Responsible Lending, the banks were charging an overdraft fee of $35 on average. And not just this, some of them were even charging the “sustained overdraft fee” if the account stayed overdrawn for many days. Some banks were charging a one-time additional fee of $35, while others were charging between $6 and $8 every day till the account balance returned to positive. So the problem worsened unless their customers could find the money quickly.

Customers Who Suffered

It was found that 8% customers incurred close to 75% of all overdraft fees. But this worsened, as the FDIC discovered that in 2008, 9% of all checking account customers were paying 84% of the overdraft fees. The poor were the most to suffer as they found that overdraft fees were disproportionately affecting the low-income and young customers. This finding was validated in a CFPB 2014 report. They reported that 10.7% customers between the age of 18 and 25 years were taking more than 10 overdrafts every year.

The Poor Are Paying For the Rich

What happens effectively with overdraft fees is that, the poor end up subsiding the rich people. The Economist reported in an article that according to the FDIC, those who are making less than $30,000 were twice more likely to take an overdraft. And often, these low-income people ended up unable to pay the fees.

The banks would naturally close their indebted accounts when this happens. It would almost be impossible for these people to open an account with another bank. So they get shut off from the formal banking system, and often turn to pre-paid cards that charge all kinds of exorbitant rates. They have to end up paying for things that usually comes free, such as loading funds into the card, cutting a check, talking to a customer service rep, and for point of sale buys. The fee can be as high as 5% for each check, no matter what the nature of the check is.

Cost is always a key factor for all businesses. The theory of business runs like this – create or procure at low cost and sell at a higher price, the difference being the profit. So when procuring a loan, a business will want to keep the cost low, to keep the margin high. However having said this, “quick” and “easy” could be equally important.

Loans from banks are good as it helps the business keep the costs down. But the problem is, the application process is very lengthy. There is also the long and complicated underwriting process, which can mean that it could be months before the business eventually gets the funds it needs. Businesses cannot wait that long quite often. For instance, there could a need to carry out emergency repairs, without which production might come to a halt. There could be an inventory order for which funds are required fast. Or the business might want to make a timely acquisition.

Picture These Scenarios

You are running a busy clothing store. The holiday season is approaching fast, and you must hire more workers. The cash register just broke, and you don’t have the extra money to hire more people.

A short term cash loan can be the right solution here. The application process is easy. The approval process is even easier. You will get the funds you require now, and can repay after making the profits. Quite simply, if this additional fund was not available, then the business wouldn’t be able to make the profit. And many of them could even lose out to competition and have to wind up. In fact, for many businesses that are almost always starved of liquid money, this is the only way they can get the money needed to prosper from an opportunity. This is why they will often go this route.

The good news is that, there are many private lenders from where the business can get these cash loans legally and quickly.

Short-term cash loans are in small amounts typically, just like it is with payday loans for individuals. Yes, the borrowing cost is higher than a bank loan, but then, it’s a great way for the business to get the much needed funds when it needs it. There are a lot less hassles, and the process is very quick as well, which every business appreciates.

Now Compare Them with Long-Term Business Loans

In comparison to short-term cash loans, long-term loans are larger typically, and the term is also longer, as the name suggests. The repayment period can be between 5 and 15 years and even more. These long-term loans are thus better for refinancing debt, real estate purchases and such others. But the problem is, businesses that haven’t yet established an operating history may not qualify for these loans. And those that cannot provide collateral are also denied.

Also, it must be mentioned here that many businesses are wary of taking a long-term loan because of the long-term commitment to repayment that they have to make. The business world is changing fast. A new discovery or development can change things very quickly. So what may work today may not do so in say 5 years time. If you have taken a long-term loan for a venture, you are stuck with it, though the venture may be redundant for all practical purposes. That is why, the short-term cash loan could be a better alternative for many businesses throughout the world.

Is a Short-Term Cash Loan Right for Your Business?

Here are some situations when a short-term cash loan could be the right option.

Finance your small expansion – As compared to a long-term loan, the cash advance makes more sense if you are not keen on carrying the debt for years for a small expansion like buying equipment or hiring employees. There is reduced financial risk if the business can get rid of the debt earlier. Plus, there is better cash flow as well. The business appreciates if there is no obligation to repay.

For managing cash flow gaps – Seasonal businesses almost always face uneven cash flow situations. Short-term cash loans could be the better alternative for paying the bills than a home equity loan for paying bills or expensive credit card debt to manage the slowdown.

For emergencies – Every business faces emergencies. In fact, many of them live from one to the next. There can be an emergency in many ways like broken equipment for instance. A short-term cash loan can be the right solution in emergencies. You will get the money you need quickly to rectify the situation. No long-term business planning is needed as the debt is only for the short-term. This way, you don’t have to worry about setting aside funds each month for several years towards repaying the debt.

For buying inventory – Often business must purchase more inventories to meet the growing demands from their customers. There could also be the opportunity of purchasing inventory from suppliers at a discount that the business might not want to miss. The short-term cash loan could be a great solution, as long as you are sure that you can eventually sell the inventory and cover the loan cost.

Where Can You Find a Short-Term Cash Loan?

There are actually many providers that can give you these loans. You should be able to meet the requirements for qualification quite easily really. Your business should be operational for at least a year and should have achieved a minimum turnover which is not steep for most. There shouldn’t be any bankruptcy in the last couple of years. If you achieve this, then it should be easy for you to get the loan. And you can be sure that your application will be approved quickly so that you can get the funds required soon.

Are There Any Risks in Taking a Short-Term Cash Loan?

There are no risks, but having said this, you must take it for the right reason.

Some critics have pointed out that the percentage of interest and the fees is more than long-term loans. That is true, but the fact is that, the business is not affected all that much as the loan is only for a short period of time. So how much more outflow can there be towards debt repayment? There is also a lower risk of falling into a debt trap. There are other advantages too, such as meeting the liquidity crunch.

So all things considered, it often makes better sense for the business to take a short-term cash loan. That is precisely why so many of them are taking them now.

Payday loan is the most popular quick cash product in the United States. More than 15 million Americans are taking them every year now. Who are the people taking these loans, why are they doing so, and from where are they getting their payday loans? Let us take a closer look at a few key findings.

Who Are Taking Payday Loans?

Extensive surveys have revealed that a borrower on average takes about eight payday loans of $375 every year. Surveys have further discovered that about 6% adults in the US have taken out these loans in the last five years. About three quarters of them have taken the loan from a storefront lender. The other one quarter has taken the loan from an online store.

Contrary to what many critics say that these loans are popular among the Asian, Black and Hispanic population, the fact is that, most of the borrowers are white and females. Most of the borrowers are between the age of 25 and 44 years. The ones who are more likely to take the loan are those without a four year college degree, people who are making less than $40,000 every year, home renters, and people who are either divorced or separated. These loans are often a savior to them, as they are able to get ready cash when they need it the most.

It needs to be noted here that those with a lower income are more likely to take a payday loan, but there are other key issues as well, and they are often more predictive than income. For instance, it has been seen that 8% renters making between $40,000 and $100,000 have used a quick cash loan, while 6% of homeowners making between $15,000 and $40,000 have done so.

Key Findings

Those between the age of 25 and 44 years are more likely to take a payday loan. By contrast, loan usage is below average among those between the age of 18 and 24 years, and those above the age of 50. In fact, seniors are rarely taking these loans. Only 2% above 70 have taken a payday loan in the last five years.

Homes earning less than $40,000 every year are three times more likely to take a payday loan, as compared to homes that are making more than $50,000. But interestingly, people from every income bracket have taken a payday loan, and this includes even the top earners. However, it is the highest (11%) among those making between $15,000 and $25,000, and low (1%) among those who are earning more than $100,000. Borrowing usually decreases as income increases.

Those who are parents usually take a payday loan more than non-parents, particularly those who are making less than $50,000 every year. Only 4% parents earning $50,000 have taken a quick cash loan in the last 5 years, while it is 12% among those who are earning less than that.

It has also been observed that loan usage is the highest in the South and the Midwest regions of the US. Payday loans seems to be very popular in Oklahoma and Missouri (13% people have taken the loan in Oklahoma, while it is 11% in Missouri). Also, loan usage is higher significantly in the urban areas, as compared to the suburbs, which is another myth. Of course, the one major reason for this significant variation is because of state regulations for payday lending.

Why Are the Borrowers Taking Payday Loans?

Studies have revealed that most people who are taking these loans want to use the money to cover their living expenses, or to pay for a sudden emergency, like the car breaking down or a medical issue. Here are some of the most common causes.

An unexpected expense for which it is difficult to have a monthly budget, like medical expense or urgent car repair.
Mortgage payments.
Credit card bills.
Rent.
Utilities payment.

What the Borrowers Will Do If They Cannot Get a Payday Loan?

Many respondents have indicated that the first thing they are going to do is cut back on their expenses, particularly clothing and food. But in reality that is not always possible, and even if done, may not be enough to meet the sudden expense. After all, you accumulate money gradually once you cut back on your spending. But what if you have to suddenly pay $300 towards your car repair? Where do you get the money from?

Borrowers are cutting back on their spending anyway, to pay back the loan they took. It is just that the payday loan gives them the much needed time, the breathing space to take control of their life once again.

Some other respondents have said that they sell their personal possessions or approach family and friends. But there is a certain negative feeling about this. It’s not a nice thing if you have to sell your precious possessions suddenly, or have to approach friends and family. On the contrary, you can get a payday loan silently. Nobody has to know about your temporary financial situation. And of course, you can keep your possessions.

Interestingly, only 4% respondents said that they will approach a bank or financial institution. 37% said that they will use their credit card, which can be a dangerous thing to do as credit card interests are steep. It can easily lead to a debt trap. Many studies have revealed that payday loans can be cheaper than credit card debt.

Some people have even said that they will approach their employer. This too, naturally, is not a nice situation. After all, your employer may think that you will begin to look for a new job as you are unable to meet your expenses with the present pay.

Payday Lending Regulation and Usage

In the United States, payday lending regulations vary from one state to another, and the regulations affect usage.

For instance, there is a huge net decrease in usage in the states where there are strong legislation against these loans. Borrowers are unable to take a loan from a storefront or from the internet. Just 2.9% adults have taken a payday loan in the last five years from all sources combined in these states. On the other hand, in the states with moderate regulation, the loan usage is 6.3%. It is 6.6% in the states with the least regulations.

But the findings also indicate that strong regulations might actually be counter-productive as often people who need the money would go to the grey market if they cannot get a payday loan. Of course the terms are not consumer friendly in the grey market. Banks and conventional financial institutions are rarely an option as they take a lot of time in issuing loans. People in an emergency cannot wait that long.

Where Are the Borrowers Taking Their Payday Loans From?

It seems like, the retail storefronts are the most popular places for payday loans. About three out of four borrowers are taking a loan from these places. On the other hand, one in six people are going online to take a cash advance loan. Interestingly, about 10% people have used both an online source and a storefront for a payday loan.

Some groups of individuals are more likely to go online when they need a loan. Those who are more likely to do so are younger people, people with a college degree, and those who are making more than $50,000 a year. These are the people with a higher rate of internet usage. On the other hand, older people, earning less than $50,000, and without a college degree, tend to favor store fronts. Also, white and physically challenged borrowers are more likely to approach storefront lenders.

The New York Fed website recently published a blog post that has questioned some commonly raised objections about payday lending and its rollover limits. Here, the author questions many critiques of these small-dollar loans, concluding by saying that more research must be carried out before we can convincingly say that the payday lending industry needs to be strictly regimented. We should be careful about rolling “wholesale reforms”, the blogger says. The post is titled “Re-framing the Debate about Payday Lending“.

This post in the New York Fed, has been written by Ronald J. Mann, Robert DeYoung, Michael R. Strain, and Donald P. Morgan. They all have high credentials, and thus, their findings are being deemed extremely valuable.

Mann is a Professor of Law at the Columbia University. DeYoung works as a Professor in Financial Institutions and Markets at the University of Kansas’ School of Business. Morgan is an Assistant Vice President in the New York Fed’s Research and Statistics Group. Formerly with the NY Fed, Strain is now the Deputy Director of Economic Policy Studies. He is also the resident scholar at the American Enterprise Institute.

With such high credentials, these four surely knows what they are talking about. On the other hand, many critiques of payday lending don’t have subject matter expertise. Often, many of them are not even economists or from the finance domain. However still, our lawmakers are being influenced by these people. There seems to be a complete lack of understanding of the realities.

What the Authors Said in the Blog Post

The four experts carried out an extensive study, and at the end, they are asserting that complains about payday loan companies charging excessive fees are unfounded. Further, they have said that these businesses don’t target minorities, which is another common complain. These charges do not hold up after a close scrutiny. So these charges cannot be valid reasons for objection.

What They Say About Fees

The authors have agreed to studies carried out previously where it was mentioned that the payday lending fees are actually very competitive. In fact, these four have even said that the competition is limiting the profits of these payday loan businesses. In other words, the lenders aren’t really profiting a lot, as has been said often by those who are always criticizing payday lending. The authors, in their report, have cited studies that discovered that risk-adjusted returns of payday loan companies are about the same as other financial businesses.

In fact, a study carried out by the FDIC with store-level data collected from payday loan companies discovered that the high APRs are justified because of the loan loss rate and operating costs.

And are these fees really all that high? A study done by “Which?” doesn’t seem to believe so. This consumer group found that the high street bank overdraft can actually cost more than payday loans. This of course isn’t the only report that has pointed this out. So if this short-term advance industry has to be regulated, then regulations should be imposed on the mainstream credit industry too.

The 36% Cap

Some consumer groups have said that there should be a 36% cap on the payday business. Authors of this blog don’t agree with this point of view. That’s because, payday loan companies are almost sure to lose money if this cap is applied. As evidence, they point out that there is no payday lending business in the states that have already implemented this 36% cap. So the four writers are completely against this cap, and have asked its advocates to “reconsider their position”. But there are certain elements in the country that want the payday loan business to go completely, though millions of Americans take cash advances from them.

Another report brought out by the Charles River Associates for the Community Financial Services Association of America revealed that strict action against payday lending will make the payday lending revenues fall by a staggering 82%. As a result, there is a high chance that many of these businesses won’t survive any more.

Five out of six lenders might go out of business.
The rural areas are likely to be affected the most.
Profits are expected to decline by an average of 68%.

What the Authors Said About Minorities

There is an outrageous charge against payday lending. It is sometimes said that these companies target people from specific racial compositions.

The four authors haven’t found any evidence of this after their extensive scrutiny. Payday lenders determine their target group based on financial status. As evidence, the authors have cited a study using zip code-level data.

It was revealed in the study that the racial composition of the zip area had no influence on the location of payday lenders. Individual-level data further revealed that Hispanic and African American people aren’t really more likely to take these loans as compared to others facing similar financial problems. This is just a myth.

On Rollovers

Some borrowers have a tendency to roll over their loans. Commenting on their blog post, the authors have blamed payday lenders that allow this, saying that this can easily lead to long-term debt that gets impossible to solve. However, we don’t understand the reasons for such roll over requests yet. It could be a behavioral issue. Also, there are some who will do a roll over intentionally, as evidence shows that borrowers who roll over often experience more positive credit score changes than those with fewer rollovers.

So we are still not sure why people ask for a roll over. Research to understand the reason has only just started. It is essential that we understand the causes and consequences of roll over before bringing about wholesale reforms.

Professor Jennifer L. Priestley even says that frequent roll over might not adversely affect the consumer. He has cast a serious doubt on capping them.

Some states have limited roll over already. So these states can be the “laboratory” that can help us find out how the borrowers there have fared as compared to the states where there are no rollover limits. Limiting roll over might be good for those with behavioral problems, but we must also know what is the cost to those who expect to roll over but cannot because of the cap. This we think will be an interesting study.

CFSA or the “Community Financial Services Association of America” is a national organization of the United States that helps in the financial empowerment of Americans by providing free information on short-term payday loans and small dollar loans. In its 15th year now, the CFSA promotes laws and regulations to protect consumer rights, and safeguards consumer interest by overseeing and monitoring the performance of payday lending companies throughout the country. The organization is committed to fairness, and encourages responsible payday lending and good industry practices.

The Virginia based CFSA has come out with their “payday lending best practices” document for both the consumers and businesses that offer short-term cash-advance loans. In an effort to bring in clarity in operations, make the industry responsible, and protect consumer rights and interest, this document showcases how all transactions should take place. All member businesses of the CFSA must abide by the “best practices” as mentioned in this document. Another purpose of the document is to encourage self-governance among those who are offering payday loans at this time.

It is good to realize that like all other businesses, there are good companies and bad ones in the payday loan segment too. So if you are thinking of taking a cash advance, then you should always be careful. Choose your company wisely. It is better to be safe than sorry later. Go through the best lending practices document before deciding. This will help you decide what to check before taking that loan.

The Best Practices document is extensive. It includes everything you need to know, compliance, disclosure, enforcement, collection, fees, advertising, roll over’s, legislation, and many others. All CFSA members must comply with these best practices as mentioned in this document. This is a condition of membership. Every year, the businesses must pledge their commitment to these best practices.

Payday lending is a responsible business that cares about their consumers. These are safe loans that help people in an emergency. This is why millions of short-term cash loans are taken every year in the US.

CFSA Member Best Practices

Full Disclosure: It is necessary for all member businesses to comply fully with the state’s disclosure requirement where their office is based. They must also comply with federal disclosure requirements, which include the Federal Truth in Lending Act. Contracts with customers should outline the terms of the payday advance transaction fully. All CFSA members will have to disclose the service fee cost in dollar amount and as the APR or the “Annual Percentage Rate”. All member businesses must make full disclosure of rates, wherever these guidelines are not in conflict with local, state and federal requirements, and these disclosures should be visible clearly to consumers before they decide to enter the transaction.

Compliance:

Member businesses need to comply with all laws applicable. The businesses are not allowed to charge a rate or fee for any cash advance which is not authorized by federal or state laws.

Truthful Advertising:

CFSA member businesses are not allowed to advertise payday lending services in a deceptive, misleading or false manner. They must promote their services in a responsible way without saying anything that is a lie or is misleading.

Encourage Consumer Responsibility:

Member payday loan businesses have to inform consumers about all details of the payday loans and procedures. On all marketing materials that include print, radio, online advertising, television, in-store promotion, and direct mail, they have to put a “Customer Notice” that is easily visible.

Rollovers:

Payday lending companies are not allowed to offer a rollover of the loan, which means an extension of the loan term in exchange for a fee, unless of course it has been allowed explicitly by state laws. And even in instances where such a rollover is allowed, the number of times they are allowed is limited to four or the state limit, whichever is less.

Right to Rescind:

When dealing with CFSA member businesses, every customer can rescind the payday advance transaction at no cost on or before the next business day closes. The businesses have to make sure that this is allowed.

Appropriate Collection Practices:

All payday advance companies are allowed to collect past dues, but this has to be done in a lawful, fair, and professional way. No member company can intimidate, harass or issue unlawful threats to any customer to collect the due amounts. The CFSA believes that all member businesses must abide by the limitations as mentioned in the FDCPA or the Fair Debt Collection Practices Act.

No Criminal Action:

No member business is allowed to threaten or carry out any form of criminal action against their customers even if the customer’s check is returned unpaid or the account is not being paid.

Enforcement:

It is the responsibility of each member to practice self-policing. All CFSA Best Practices violations are to be reported. The CFSA is going to investigate the issue and take the right action. Businesses must maintain and post their own toll-free consumer hot-line number in all their offices or outlets.

Support Balanced Legislation:

Member businesses are all expected to work with state regulators and legislatures for supporting responsible legislation of the payday lending business to incorporate the industry best practices.

Extended Payment Plan:

Sometimes, some customers, in spite of their best efforts, may find it very difficult to repay the loan amount on time as agreed upon in the original contract. In these situations, the member companies must provide them the option of repaying the amount due over a longer time. However, this extended time must be offered in compliance with any state law. Where there is no such state law, the extended period contract must comply with the “Guidelines for Extended Payment Plans” as mentioned in the CFSA Best Practices. Members must disclose this Extended Payment Plan adequately to their customers while complying with any state law for such disclosures, or when such a thing is not included in the state law, they must comply with the “Guidelines for Extended Payment Plans” mentioned in CFSA Best Practices.

It needs to be noted here that laws in a few stats don’t allow the implementation of the Extended Payment Plan (EPP) of CFSA. The Community Financial Services Association of America is working with regulators in these states to allow the implementation of the CFSA’s EPP plan so that this can be allowed in the state law in the future.

Internet Lending:

These days, many payday loan companies are offering their loan plans over the internet. All member businesses that are doing this must be licensed in each state where their customers are based. The companies are bound to make full disclosure, clearly mention the rate, mention rollover, and comply with other requirements as imposed by the state, unless there is no requirement to be licensed in the state, or there is no requirement to comply with the provisions, or the federal law has preempted the state’s licensing requirements and other laws applicable.

Display of the CFSA Membership Seal – Member businesses of the CFSA must display the CFSA Membership Seal prominently in all outlets so that their customers come to know that the store is affiliated with the association and adheres to all the best practices of the Community Financial Services Association of America.

Finally, all member businesses of the Community Financial Services Association of America must provide a copy of the “Your Guide to Responsible Use of Payday Advances” brochure in both Spanish and English. This will go a long way in informing and educating all payday loan customers.

Unfortunately, the holiday season isn’t bright and merry for a lot of Americans. This is a time of financial struggle, when they have to find out the best way of putting gifts under the Christmas tree, while still paying for all the everyday expenses. It can certainly seem very difficult to meet both the ends. Sadly, the CFPB or the Consumer Financial Protection Bureau is about to come out with new regulations that could make the holiday season far worse for many families going through tough financial times.

Not everybody is in the banking system. In fact, according to estimates, about one in every four American homes carries out financial transactions outside what we call the mainstream banking system. Without having a savings account or checking account, they are not able to get credit cards and traditional loans among others. So their financial options are largely limited when they need some extra cash. These are your “under-banked” Americans.

To benefit from the low prices just before the holiday sales, many of them will turn to payday or such other short-term loans. They often use this money for their emergency car repairs and to meet other financial expenses before the next payday.

The Cost of Issuing a Payday Loan

It has often been said that the payday loan providers charge a steep interest rate. There is certainly a cost, like any other loan from any other provider. However we need to take a step back and think for a moment – is the payday loan cost for a consumer actually too much, when you consider the cost for the lender who is issuing the loan?

The fact is that, there are significant financial risks for a lender who is issuing the payday loan. The money is provided to people who often don’t have the credit standing that qualifies them for other financial options that are less expensive. Because of this, there is no option for the payday lenders, but to charge a somewhat higher fees and interest rate, because they must cover their risks.

Agreed in terms of APR (Annual Percentage Rates) the loans may look like high rate loans, but in terms of money the consumer pays a few dollars fee on hundred dollars. This is not something most are unable to pay.

The FDIC came out with a paper recently titled, “Payday Lending: Do the Costs Justify the Price“? This paper concluded by stating the following:

“We find that fixed operating costs and loan loss rates do justify a large part of the high APRs charged on payday advance loans”.

So you see, even the FDIC agrees these higher fees and rates. And not just this single paper, many other studies too have revealed the same findings.

No Negative Effect on Credit Score

Many studies have also shown that payday loans do not really have a negative effect on the credit scores of borrowers. Actually, research has revealed that with these short-term loans the borrowers can avoid bouncing a check, and thereby avoid the high costs associated with them. And of course, the borrowers can pay their bills on time with the money they get from such loans. In fact, if anything, a payday loan can actually help borrowers improve their credit score. If you can pay back on time, and show that you are able to meet your financial commitments, then your credit score is bound to improve.

However, in spite of all these obvious benefits, it is surprising that the activist groups and some law makers are pushing the CFPB to impose stricter regulations on the activities of payday lending agencies. We don’t think that’s the right decision.

Truth About the Activists – The CRL

CRL or the Center for Responsible Lending is one agency that is leading the charge for tighter regulations on the payday loan industry. This group was set up by Herb and Marion Sandler. CRL says that their mission is to prevent what they call is “abusive lending practices”.

However, did you know that the Sandler’s made their money by issuing adjustable rate mortgages where the payments every month used to go up steeply by thousands of dollars? These sub-prime and adjustable mortgages naturally caused massive defaults. This issue has been highlighted several times in “60 Minutes”, “The New York Times” and by others. In fact, it is often said that this was one of the contributing factors that eventually caused the financial crisis of 2008.

So shouldn’t we take what the CRL is saying with a pinch of salt?

The Center for Responsible Lending says they want a cap on the annual interest rate charged by the payday lenders at 36%. In truth, if this cap is put into effect, then this would be the end of payday lending, much like what has happened in all those states where this 36% cap has been brought into force.

Looking Deeper to Reveal the Truth

Let us look deeper now into why exactly the Center for Responsible Lending wants the elimination of payday lending.

The fact is that, the CRL might have a financial interest in asking for these unjust interest caps on payday loans. Self Help is the parent organization of CRL, and it is a fact that the Union too offers short-term loans. A report published in the POLITICO recently shows the exchange of emails between the CFPB and the CRL. In these emails, the CRL was seen “pushing CFPB to support its own small-dollar loan product with a much lower interest rate as an alternative to payday loans”.

Shocking Irony

This is shocking. The founders of CRL offered junk loans to consumers who clearly couldn’t afford them, causing massive defaults and bankruptcies, while they were silently minting money. This was one major contributor for the Great Recession and the housing crisis. And now the same CRL is showing compassion for the public and wants to prevent defaults. They are now asking lobbyists to limit short-term lending under the disguise of preventing “abusive lending practices”. Their real interest, it seems, is to remove the competition so that CRL’s parent organization the Self Help can once again peddle their own short-term loan plans.

Sometime soon, in the next few months, the CFPB is going to come out with their final version of the rules. The market is saying that the interest rate payday lending companies can charge is going to be limited. Plus, the companies will also have to make sure that the borrowers have the means to make the repayments. It has been said that many payday loan companies will go out of business once these rules are brought into effect.

That is precisely what the Self Help and CRL wants. This will surely benefit them. But this is going to seriously hurt the 12 million Americans who take a payday loan every year. Unable to access the conventional banks and payday loans, many of them are bound to turn to options that are less regulated, like loan sharks and pawn shops. Unable to pay their bills on time, they will have to file for bankruptcy. Or they must forego their Christmas presents altogether. Do you want this to happen? Do you want your neighbor to go hungry during the holiday season?

American families don’t deserve these CFPB regulations.

Payday loan survey results in US has thrown a surprising data which strongly favors payday loan and its lenders. Read to know the details.

CFSA or the Community Financial Services Association of America asked Harris Interactive to carry out a detailed survey to find out whether consumers were happy with payday loans. It was important for the CFSA to find this out, as lawmakers and many experts have been complaining about these cash advances.

So what did Harris Interactive find out? Is it time to impose stricter regulations on the payday loan industry, or even ban their operations, or should the lawmakers be actually promoting them? What do the consumers, the people who actually matter, think?

The truth might surprise you!

Here are some of the findings of the Harris Interactive survey…

Summary of Detailed Findings of the Payday Loan Survey

The surveyors discovered that a vast majority of the borrowers are recognizing the benefits of payday lending. They appreciate that these short-term loans can bridge their financial gaps.

95% of the borrowers said that they value the fact that there is the option to take a payday loan when they need it.

89% or nine out of ten agreed that they can control their financial condition better with these loans. 68% or two-third of the respondents said that without these loans, they would be much worse off financially.

Nine in ten people who took a payday loan agreed that these loans can,
a) Give them a safety net when they face an unexpected financial issue (95%).
b) It is a smart decision to take a loan when there is an emergency cash shortfall (92%).
c) It is worth the cost, as they can avoid all those late charges (89%).
d) These loans help them bridge their financial gaps (87%).

About 49% of the borrowers said they required the funds to pay for an unexpected expense like a medical emergency or urgent car repair, and a fewer number of people said they required it for some other expense between the pay days (44%).

Some other reasons borrowers said for asking for the payday loan,
a) 28% for avoiding a late fee.
b) 23% to avoid overdrawing their bank accounts or bouncing a check.
c) 19% to help a relative or friend who required cash.
d) 10% cited other reasons.

Most borrowers said overwhelmingly (68%) that they will take a payday loan if they are facing a short-term financial situation and are unable to pay their bills, and are absolutely OK with the $15 fee charged for each $100 borrowed.
a) 4% said they will take the loan to avoid not paying a bill, or to avoid the penalty or late fee.
b) 3% took the money to prevent overdrawing their bank accounts and for not paying the overdraft fee.
c) 24% or one-quarter were not sure of the option, but would use the payday money for both of them.

Many borrowers are saying that when they need money between their pay checks, they are,
a) Cutting their spending (67%),
b) Borrowing from friends or family (60%).

Borrowers are looking at these financial solutions when they need additional funds,

a) Bank account overdraws with the overdraft fee – 43%
b) Credit card – 41%
c) Pawning a personal item – 27%
d) Bouncing a check with the fee – 25%
e) Cash advance on the credit card – 17%
f) Title loan or installment – 15%
g) Something else – 6%

Interestingly, most of these borrowers had the option of going for at least one of these above mentioned financial resources when they took a payday loan. In fact, 92% of the respondents said that the payday loan wasn’t their only option, but they still decided to take it as this seemed the wiser alternative.

Among the borrowers who had one other resource available at least when they decided to take a payday loan,

Close to 78% said they decided to take a payday loan over the other available options because,
a) 71% said that it was faster and/or simpler.
b) 70% said that these loans were easier to understand.

Around two-thirds opted for a payday loan because,
68% said they didn’t want to borrow money from friends or family.
a) 65% said they had a previous good experience dealing with a payday lending company.
b) 64% said they did not want to overdraw their bank account and pay for the overdraft fee.

Why People Trust Payday Loans According to the Harris Interactive Survey

59% of the respondents said that payday loans are more trustworthy, in spite of all the recent negative publicity about them.

41% borrowers said that these loans were less expensive.

Most borrowers are completely satisfied with the payday lending process. Borrower experiences have consistently met or exceeded expectations. In fact, many of these people want to use, or even recommend these loans to others.
a) Almost all respondents (98%) said that they are at least somewhat satisfied with these loans.
b) 65% or two-thirds said that they were completely satisfied with their payday lending experience.

Reasons Borrowers Are Satisfied With Payday Loans

82% said they were satisfied because these loans were very convenient.

81% said their lenders treated them with respect.

80% said these loans met their short-term cash needs.

76% said the process was very simple.

75% said that the payday lenders were honest businesses.

57% said they could not get another loan because of their poor credit history.

52% said that payday loans were less expensive as compared to the alternatives.

5% respondents gave other reasons.

Positive Borrower Experience

97% people said that their overall experience with the process of payday lending was as expected. 61% said that it was actually better than they expected. Only about 3% individuals said that it was worse than expected.

Based on their recent payday loan experience:

80% of the borrowers or four in five people said that they are likely to ask for a payday loan again from the same lender when they need money in between the pay checks in the future.

65% or two-thirds said they were very likely to take another payday loan.

22% said they were somewhat likely to take the loan again.

19% of the respondents said they were willing to recommend these loans to their friends and family.

Observations

After carrying out a detailed analysis of the findings of the Harris Interactive survey, it is thus clear that the market is completely satisfied with payday lending, and the businesses that are providing these loans.

That is the reality. It is not an assumption that these loans are making people bankrupt. In fact, payday lending is achieving just the opposite of this. These loans are helping people have cash in hand so that they do not have to file for bankruptcy.

A huge majority of people who take a payday loan understand them well and are willing to make informed decisions. They want to use the money responsibly and will do everything they can to repay the loan on time. More than nine in ten individuals are saying that they weigh the benefits and risks carefully before taking the loan, and are very happy with the end results. The overall math is working for them.

It is good that the lawmakers should want to protect consumer interest. They should be doing this. But it’s time to realize that the risk is not from payday lending. All that they need to do is ask those people who are taking these loans. They will realize that they find payday lending most useful.

Recommended Reading:

Payday Loans Survey And Borrower Experience

Usually it is said that you should take a loan when you need some additional cash. This requirement is stricter in the case of payday loans. Ask for the cash advance only if you absolutely need the cash. Payday loans cannot solve your financial crisis. They can at best solve your immediate cash crunch situation.

But what about the holidays? Is it a good idea to do some shopping with the borrowed money from these loans? It is indeed. We will see how you can save money using payday loans shopping for the holiday season. In short the offers you get during holiday seasons by far surpasses the cost of taking a payday loan. The maths favors taking a payday loan and doing the holiday shopping. In fact this is actually happening a lot in the US. During Black Friday and Cyber Monday sales, the number of people taking payday loans increases many folds. In fact we think that during these times even those who have the money take payday loans to do shopping. They very well know that the fee they pay for the loan, will be less than the money they save in discounts. So essentially even after paying the fees, they benefit.

Taking a loan during holiday season is a relevant question because conventional wisdom will tell you otherwise. However having said this, it is also a fact that Christmas isn’t going to wait for your next paycheck. So if you don’t have the money to do the Christmas shopping this year, then it would mean nothing for this year. Nothing new for the home, no new toys and gifts for your kids and family, and no holiday gifts for your near and dear ones.

The kids are going to be unhappy, which you don’t want. Everyone is going to feel that you have failed to provide for the family in this important time of the year. Is that a nice feeling? Certainly not!

Holiday Shopping – The Cost of Missing Out

There is a risk in this too, as it can lead to depression and mental trauma. Your home is in darkness when all your friends and neighbors are celebrating and lighting up their homes. Plus, there is another aspect as well. If you suddenly stopped giving away Christmas gifts during the holiday season, then everybody in the family is going to know about your financial problems. It is not going to remain confidential any more. Surely that is not going to be a nice thing. After all, you don’t want the world to know about your financial worries. It could be worse if they begin to send you money.

There Is Another Price to Pay for Missing Out

Once every year, the retailers pull out all the stops to offer monster discounts. It is called the “Black Friday” sale and it is held on a particular day about a month before Christmas. Yes you can benefit form this sale every year, if you have the information, and know why it might be a good idea to shop on this day even with borrowed money.

Black Friday is organized to entice shoppers. They offer special discounts and record-low prices to make people come to their stores. Traditionally, stores didn’t profit throughout the year. In other words, they were in “red”. The day was called the Black Friday because this is the day from when they turned “black”, or began to make a profit. This isn’t true anymore, but the special offers and discounts continue to be provided. These days, even the online stores are offering Black Friday discounts and offers. That of course means many more opportunities to profit from these sales.

The Opportunity

Now here’s the opportunity. All of us need to buy things, even those who are living from one paycheck to the next one. The idea is to identify the real deals, where the physical and online stores are selling things at a very big markdown and get the things you need at these low prices.

You might have to purchase many of these things eventually, even with your limited resources, as not all buys can be put off indefinitely. However making the essential purchases at this time means that you will be saving money, even when you add the cost of the payday loan to this (the fee and interest outflow). You will still end up saving money because of the extremely low prices during the Black Friday sales.

Then there is the “Cyber Monday” too, which is typically online as the name suggests. Online stores started offering the Cyber Monday deals as an answer to the Black Friday deals of brick and mortar stores. But to be quite honest, these days, many online stores are offering special prices throughout the weekend, from Black Friday to the Monday or Black Friday. So you have 4 days when you can prosper by saving money.

Consider the additional money you must spend on the same things, if you don’t purchase this time of the year, and you will see the valid point we are making.

If you are a smart shopper, you will certainly want to consider this as a viable option.

Garage Sales

Wait! There are other opportunities as well.

Many home owners want to clean their homes before the holiday season. They will go through all their stuff and discard things that they don’t want. Also, they want to make space for the new things they will get during the holiday season. So they will organize garage sales, where they offer their things at record low prices.

That’s another opportunity where you can get many useful things at low prices and save money, if only of course you have the money.

Unlike Black Friday, which is already gone for 2015, if you look, you will still find many garage sales this year. Many home owners are still busy trying to find out what they can sell off. So do your research and find out what they are offering. Look around your neighborhood. Ask your friends, colleagues and relatives. Do you see anything that seems handy? Surely, you will find many useful things there.

Take a Payday Loan, Get the Money You Need

Don’t wait for your next paycheck, as these opportunities and special deals might be gone by then. It’s fine if you don’t have the cash you need at this time. Take a payday loan. And quite frankly, you shouldn’t even consider this as a loan, because with this money, you will actually be saving money.

Often, from these sales, you can get things you need at 50% discount, and sometimes at even lower prices. Now, there is no payday loan product that will cost you 50% more than the borrowed amount at such a short time. Remember, these are short-term loans, where you borrow the money for just a couple of weeks.

So how much more can you end up paying to the lender, even with the interest and fees? Surely, it cannot be more than the 50% or more savings you make from buying at garage sales and Black Friday deals.

Get Smart, Buy Now, and Save Money

Be a smart shopper. Why spend more later, when you can get the same things for less at this special time of the year? Why deny your friends and family the things and happiness that they look forward to throughout the year? Why deny yourself the happiness that you deserve? After all, the financial crisis could just be a temporary thing. But if you don’t buy now, then you could feel sorry for the rest of your life. It will end up being a permanent blot in your life’s calendar. This year isn’t going to come back ever again.

Take our payday loan. Get the money you need. It’s a small price to pay. It’s a smart way to save money during the holiday season. Happy shopping and happy savings!