Payday Loans | L.A. Times Swings and Misses (Part I)

Hate it or Love it

Payday loans, says Check Into Cash founder W. Allan Jones, is “the craziest business. Consumers love us, but consumer groups hate us.” According to this recent Los Angeles Times article, that’s where the divide seems to be, and in their estimation, that is a problem.

“Critics say they trap the working poor with steep interest rates; lenders say they provide a needed service,” say the newsprint propagandists, and yet customers continue to seek payday loans in person, online and via the telephone. Since it’s clear people aren’t being forced into using payday loans, why do they choose them? Perhaps because they’re fast, convenient, inexpensive when compared with bouncing checks and paying late fees and discreet in relation to your credit report?

It’s easy to apply, which critics mistake for entrapment

Swing and A Miss

With identification, proof of steady employment and a checking account, a consumer in need of quick cash to over expenses if a surprise threatens their between-paychecks budget can use payday loans.
“Americans now pay as much as $8 billion a year to borrow at least $50 billion from payday lenders, by various estimates,” says the Times. Let’s look at that. $8 billion is actually only 7.5 percent cost, which is not out of the ordinary when paying back a loan, is it? Was that statistic supposed to be scary?

Payday loans are busting out all over

The author of the Times piece goes to great lengths to point out how payday loan establishments have proliferated, in a negative way. Yet does an abundance indicate a problem? Do not these stores provide jobs during difficult economic times?

The ubiquitous notion of “cycle of debt” is also addressed in the article. Yet according to the Community Financial Services Association (CFSA), of the few states that permit loan rollovers, CFSA-member lenders can only offer four or fewer. Thus, recycling the same debt is made quite difficult, and in such a situation, a loan can’t last longer than eight weeks. Moreover, regarding repeat borrowers after the initial loan is repaid, researchers and state regulators surveyed by the CFSA and other institutions consistently show that 70 to 80 percent of customers use payday loans anywhere from once a year to a maximum of once per month. This does not indicate chronic patterns of consumer financial abuse.

Living without a cushion

While it is true that many people live without a savings cushion for difficult times, it is also true that Payday loans cannot be honestly connected to any form of financial ruin. Reports by investigators like Dartmouth University’s Jonathan Zinman even show that the absence or unreasonable capping of interest rates can have a detrimental effect upon the populace. Individual responsibility and discipline is vital to one’s success in any endeavor. Payday loans, like pain medication, alcohol or potato chips, are useful when used in controlled moderation. Just because the “Twinkie defense” worked doesn’t mean that juries and judges aren’t ever temporarily insane.

Speaking of cushions, larger brick-and-mortar payday loan companies are designed with family comfort in mind. Seating is available, the lobbies are clean and easy to navigate and many provide toys to occupy young children while mom or dad is waiting to speak with a teller. In some cases, outlets are even located inside big box stores like Wal-Mart, as well as grocery stores or other big retailers.

TUNE IN HERE for the exciting conclusion of “Payday Loans | L.A. Times Swings and Misses” to see how the short-term loan is a product whose time has come.