The debate about payday loans should be informed by reliable and complete statistical information. Image: Thinkstock
Payday lending is a hot-button issue. Consumer Focus released a study saying the number of payday loans borrowed in the United Kingdom has quadrupled in the last four years. Montana’s I-164 initiative seeks to limit payday lending, and Arizona’s “Operation Sunset” ended all payday lending within the state on June 30. Federally, S.3245, the Payday Lending Limitation Act of 2010, seeks to extend the Truth In Lending Act to cap all payday loans at 36 percent interest.
Understanding payday loan statistics
Understanding the payday loan industry and its customers is complicated by ubiquitous inaccurate and conflicting data. A recent report by Personal Money Market that compiles more than two dozen studies on the industry reveals that many commonly held beliefs are not supported by the numbers. For example, the average payday loan customer makes $47,260 per year and has been working for the same employer at least four years. More than 95 percent of borrowers confirm they understand the finance charges on these loans, while only 20 percent of credit card customers say they are able to comprehend their credit card agreements, according to a creditcards.com analysis.
The numbers behind short term credit
Studies by groups ranging from the Federal Reserve of New York State to our company, Personal Money Market, found that 11 percent to 20 percent of applications in brick-and-mortar stores and up to 99 percent of online applications are rejected. Still, one of every five payday loans is written off as a default. The profit margin for most payday lenders is between 8 percent and 10 percent, compared to the 12 percent profit of J.P. Morgan and 27 percent profit Goldman Sachs reported to the Securities and Exchange Commission in April.
Attempting to inform the discussion
A careful and informed discussion of the issues surrounding short-term credit and payday lending has been lacking. With pending legislation in the Senate, 15 states that ban payday lending altogether and several states considering limitations, accurate statistics are vital.
A full copy of the report is available at http://personalmoneystore.com/payday-lending-statistics/
