Once again, Personal Money Store proves that online payday loan customers have solid, steady incomes. Where's the exploitation? (Photo: picasaweb.google.com)

If you don’t already know that American news media is first and foremost an entertainment medium, allow me to be the one to break it to you. Sensationalism sells better than the truth. Biased story selection and reporting slant are inescapable, particularly when you consider the influence of corporate sponsorships. Since Wall Street and the American banking industry are monolithic entities, their money makes a big difference in what the public hears about the economy and the shenanigans that really led to the country’s economic collapse.

They Don’t Want You to Know that Payday Loans are Useful

So they create smear campaigns that accuse the payday lending industry of preying upon vulnerable segments of society, such as the poor and the elderly. However, many studies of the industry have proven this claim to be false. Looking at applicant demographics for Personal Money Store from June 1, 2009 to October 20, 2009, we see a different picture. Our online payday loan customers are not disadvantaged, too young or too old. They’re at a stage in life where they have financial experience and know how to spot a good deal when options are few.

The Numbers Tell the Story

Consider all customers who applied for an online payday loan on Personal Money Store (accepted or denied), here are some facts to ponder:

• Average age: 35. These are people who have some experience dealing with the financial shocks life can throw your way. As industry studies tend to show that many payday loan customers have young families, it may be safe to say that Personal Money Store’s average applicant is in a position where they need to be careful with the way they handle their finances.
• Average income: $31,690. That’s hardly poverty level, and that’s just for the individual applying. If you’re talking about 35-year-olds who are just beginning to come into their own career-wise, then you have someone who hasn’t reached their maximum earning potential yet. Perhaps their access to certain forms of credit has been limited due to a relative scarcity of liquid assets. This makes payday loans a more easily attainable option in an emergency.
• Average length of employment: 6 years. That’s an indication that the person is dependable, rather than transitory and risky. They’ve been trusted to do their job, which payday lenders definitely take into account.
• Average time at current address: 3 years. Again, this could be seen as a stability indicator. Constant relocation tends to walk hand-in-hand with fluctuating types of employment held and income levels. If a payday loan applicant is entrenched, perhaps they are less of a risk.
• Home ownership: 34 percent. While hardly a majority, this statistic is still significant. More than a third of Personal Money Store’s payday loan customers own their own home. That goes along with steady income and personal responsibility, as they have to make a monthly mortgage payment.
• Average time spent on application form: 4 minutes, 44 seconds. This tells us at least two things. First and foremost, it’s proof that it doesn’t take all that long to apply for an online payday loan. The application asks for standard information to establish a person’s employment, checking account existence, age and identity. It’s easy to complete. What this number might also tell us is that our customers aren’t rushing into the process too quickly; they’re being careful and carefully considering what the application requests.
• Percent of customers who apply for installment plans: 27.76 percent. This addresses another area where media and banking industry critics have it wrong. They claim that payday loans are a certain path toward an endless cycle of debt. Used improperly, they can cause harm. But so can Cheese Whiz. If a responsible customer (most people are responsible in this world, I find) needs to extend their repayment schedule due to unforeseen financial occurrence, installment plans are usually available.
• Percent of returning visitors out of all traffic: 4.64 percent. We hope you enjoy our site; let’s grow this number!
• Percent of applicants who are return visitors: 7.36 percent. We hope you enjoy our site; let’s grow this number! However, keep in mind that this stat also indicates that people who apply for payday loans at Personal Money Store aren’t being “roped in,” as if against their will, to that media-blustered endless cycle of debt.

The Numbers for Approved Applicants

Not everyone who applies for online payday loans at Personal Money Store receive a green light. It’s important that there are standards in place. These protect both lenders and the consumer.

• Average age: 37. Mature enough to know what financial decisions work best for them. Responsible enough to make good decisions for their families. That’s your average Personal Money Store payday loan customer in a nutshell.
• Average income: $36,000 for the applicant only. Above average in many instances, and certainly not too poor to be able to repay their payday loan debt.
• Average length of employment: 6 years. Stable.
• Average length at current address: 3 years. They’ve put down roots. Doing the right thing is important for them.
• Home ownership: 42 percent. That’s almost a 10 percent increase over the average for all applicants. It indicates responsibility and greater financial security. It goes to show that everyone can use a payday loan in a pinch.

Even Declined Applicants Show Experience, Solid Income

• Average age: 34.
• Average applicant income: $30,672.
• Average length of employment: 5 years.
• Average time at current address: 3 years.
• Home ownership: 31 percent.

Some Techie Stats For Our Online Payday Loan Applicants

You’ve heard the whole thing about the “browser wars,” right? While using Internet Explorer could be viewed as a negative in this day and age, the truth is that it has a large market share thanks to the preponderance of Windows software. Here’s a breakdown of what browsers Personal Money Store applicants use.

• Internet Explorer (all versions): 62.37 percent. It’s all about market share.
• Internet Explorer 7: 47.3 percent. Not everyone has upgraded to IE 8 yet.
• Internet Explorer 8: 32.09 percent. Here we go. But why not Firefox or Chrome?
• Internet Explorer 6: 20.57 percent. Nobody’s perfect.
• Firefox: 24.57 percent. This number seems likely to grow over time, although it may never catch IE, which has a big head start.
• Safari: 8.45 percent. Mac users take out payday loans, too.
• Chrome: 2.8 percent. This browser is relatively young, but it’s quite fast. Why not make your online payday loan application process that much faster?

Connection Speed

Personal Money Store customers have proven that they are living in the 21^st century, as at least three-quarters of applicants have access to broadband connections:

• Cable: 41.97 percent
• DSL: 23.83 percent
• T1: 9.99 percent
• Unknown: 20.82 percent. Yes, even international men and women of mystery need online payday loans.
• Dialup: 2.15 percent. I know it’s cheaper, but really? Payday loans can help with that.

So What Have We Learned Today?

Online payday loan customers at Personal Money Store do not fit the negative stereotypes the media would have you swallow hook, line and sinker. They are responsible and consider their options carefully, often because they have an entire family’s financial welfare to consider. They certainly aren’t being exploited. That’s the media’s job.

Gregory Elliehausen of the Board of Governors of the Federal Reserve system recently produced a telling payday loan report entitled “An Analysis of Consumers’ Use of Payday Loans.” This report gives us a glimpse into the demographic characteristics of payday loan customers and shows us some of the key factors that go into the decision-making process of whether to use the loan product for emergency cash. For a convenient synopsis, consider the Payday Pundit’s outline here.

Payday loans: a cure, not an epidemic

This cutting edge payday lending study proves through survey data of payday loan customers that lenders provide “a desired service to lower and moderate income, middle-educated, young American families.” Unlike the bleating cries of those who criticize the industry – who claim that there’s a payday loan addict around every corner – Elliehausen clearly and non-judgmentally shows that only two percent of U.S. adults use payday loans at any one time.

Elliehausen makes it quite clear

Here’s a sampling of what is known about cash advance customers:

• Sixty-three percent of customers are the heads of young families
• Only 10 percent are 65 or older, indicating that the elderly are not being exploited or targeted as most critics claim
• Customers typically have “lower and middle incomes”; 41 percent earn $25,000 to $50,000 per year, while 39 percent earn $40,000 or more
• Higher income payday loan customers (those who earn above $50,000) make up a larger share than those in the lower bracket ($15,000 or less). This refutes the idea that the poor and destitute are being “targeted”
• Ninety percent of customers have a high school diploma or better, while 54 percent have attended college or have a higher education degree
• General indications are that payday loan customers have limited access to credit, yet still use payday loans sparingly
• A whopping “eighty-one percent of customers recalled receiving information on the annual percentage rate for their loan” and were aware of overall costs
• Even more telling, 86 percent of no fax payday loan customers said that the product was a “useful service”

Politicians, leave the payday loan alone… respect your constituency

Past academic studies have shown that the payday loan benefits consumers, and that taking them away leads to a decrease in financial well-being. Elliehausen’s study concludes that

In giving consumers access to additional credit for unexpected expenses or shortfalls in income, payday loans give the consumers a little control over their financial situations that they otherwise would not have.

A payday loan is a tool, a bridge and a temporary cure. Limiting consumer options by taking them away makes no sense in a society that values the abilities and opinions of its people.

Related articles

• Consumer credit drops for the third straight month (money.cnn.com)

It is distressingly common for the media to paint a story of sensationalism when it comes to payday loan companies. Accuracy is the first casualty in their efforts at fear-mongering, and what incentive do they have to present information in a clear-headed fashion? Tales of a dark, trenchcoated villain, twirling a waxed handlebar mustache, plotting the ruin of consumer after helpless consumer with a seductive cycle of debt. It makes for a nice little Vaudevillian melodrama. It makes for good copy, as corny as it sounds.

But life defies such easy categorization. The same is true when it comes to the truth about customers who make use of a payday loan. Are they the poor and the downtrodden? Are no fax payday loan customers hopelessly addicted to loans and rollovers? Are they trapped in a debt bear trap and ready to chew off their own leg for more?

No. Payday loan customers stand on their own two feet

Faxless payday loan companies assist a clientele from all walks of life. But when the average customer profile (female and male) for a major lender that works with Personal Money Store is considered, it’s easy to see that the media horror stories represent a tiny minority of cases. Even things that nobody would argue are unhealthy – like water- can seem dangerous in the hands of a visible minority who happens to make the 11 o’clock news. Payday loans help the great majority of consumers who call upon them, and they do not create a cycle of perpetual debt. The proof is in the numbers – even though it doesn’t make for a juicy story for the Center for Responsible Lending or some other bank-sponsored interest group to crow about…

Who uses payday loans? I do. You do.

For anyone who has ever been in a short-term financial jam, speed, convenience and discretion are valuable watchwords when it comes to digging your way out. These are all things that a payday loan offers. Used responsibly, they don’t trap anyone in a vicious debt spiral. They are quite different from the revolving debt quagmire of credit cards, late fees and checking overdrafts. The truth doesn’t always make for entertaining news copy, but it’s still the truth. Look in a mirror and ask yourself if you would ever use a payday loan. The answer may not be as much of a surprise as you think.

Yet simple, fact-based (rather than anecdotal) evidence tends to cut to the heart of the matter. Recent studies by Answers, etc., a company that has developed check-cashing and payday advance software for the consumer financial services industry since 1989, presents clear information about payday loans. Their research over the past few years indicate that payday loan costs, the standard customer profile and how the consumer loan products are regulated fall far from the media’s unstudied portrayal.

What do payday loans cost in relation to typical alternatives?

Answer, Etc’s findings indicate that on average, payday loan fees are 2.3 times less expensive than checking overdraft charges. An even greater discrepancy exists when late charges and utility reconnect fees are considered. Banks and credit unions are fond of citing the near 400 percent APR that accompanies a no fax payday loan, but this is misleading. First of all, no payday loan is a 12-month loan; typically they are to be repaid in two weeks. Furthermore, payday loan opponents deliberately neglect to mention that the APR game definitely doesn’t play favorably upon their argument, as you’ll see. These are average examples; frequently the other numbers can make payday loans look like even more of a bargain:

• $100 payday advance – $15 fee, 391 percent APR
• $100 checking overdraft protection – $30 fee, 782 percent APR
• $100 credit card bill with late fee – $29 fee, 756 percent APR
• $100 bill, fee for late/disconnected utility bill – $50 fee, 1,304 percent APR
• $100 bounced check/NSF – $25 fee, 652 percent APR

Interestingly, banks and credit unions are exempted from disclosing their fees for overdraft protection and NSF charges as an APR. Perhaps the above information casts a harsh light on the reason why.

How much do THEIR fees cost?

• Consumers will pay $4.2 billion in ATM service charges in 2006 to withdraw their own money (Bankrate.com Fall 2006 Survey)
• Consumers pay an estimated $22 billion in NSF fees to banks and credit unions (”Contrasting Payday Loans to Bounced Check Fees,” Consumer Credit Research Foundation, Thomas E. Lehman, Ph.D., 2005)
• Banks collect an estimated $10.3 billion annually for overdraft protection services (”Overdraft Fees Can Overwhelm,” Washington Post, June 26, 2005)
• In 2000, consumers paid credit card interest of more than $87 billion (Public Interest Research Group, 2002)
• An estimated $57 billion in late bill payment fees were collected by businesses in 2003, more than 140 percent of the total estimated payday lending volume in the United States (”Sizing NSF-Related Fees,” BAI Banking Strategies Magazine, Bill Stoneman, January-February, 2005)
• Credit card late fee penalties totaled over $11 billion in 2005 (CreditCards.com, November 2006)

Payday loans are regulated to best serve consumers

The “cycle of debt” that the media attributes to payday loans is quite often an impossibility, as few or no loan rollovers are typically allowed. Here are recent restrictions states place on the industry. Any that have changed have only become more strict. They remain among the lowest rates in the country for consumer loans:

• Arizona: 15 percent max fee; $500 max loan; three rollovers
• California 15 percent max fee; $300 max loan; no rollovers
• Colorado: 20 percent max fee on first $300, 7.5 percent on next $200; $500 max loan; one rollover
• Kansas: 15 percent max fee; $500 max loan; no rollovers
• Missouri: 75 percent of loan amount Max Fee; $500 max loan; Up to 6 rollovers;
• Nebraska: 15% Max Fee; $500 max loan; No rollovers;
• Nevada: No Limit; 25% of gross income max loan; None beyond 60 days for original due date;
• Oklahoma: 15% Max Fee up to $300, 10% above $300; $500 max loan, No rollovers
• Oregon: No Limit; Subject to net income max loan; 3 rollovers
• Washington: 15% on the first $500, 10% to $700 max fee; $700 max loan loaned; No rollover.

Portrait of a payday loan customer

• The average payday advance customers earn $40,000 annually
• 68 percent are under 45 years old; only four percent are over 65, compared to 20 percent of the population
• 94 percent have a high school diploma or better, while 58 percent have some college and 19 percent have a college degree
• 41 percent percent own their own homes
• 85 percent have access to other credit, including savings accounts
• 77 percent of the customers were satisfied with their experience
• 92 percent of customers think payday lenders offer a valuable service
• 90 percent of customer are satisfied with their understanding of the terms and conditions of the loan
• 100% have steady incomes and active checking accounts, both of which are required to receive payday loans

(Sources: The Credit Research Center, McDonough School of Business, Georgetown University, Gregory Elliehausen and Edward C. Lawrence; “Payday Advance Credit in America: An Analysis of Customer Demand,” April 2001; Cypress Research Group, “Payday Loan Customer Satisfaction Study,” April 2004)

Payday loans exist because the public supports them

Regardless of media claims, payday loans are a viable form of short-term support when consumers face financial shortfall. Consumers find them to be consistently fast, convenient and discreet. When the simple, most direct data is studied as Answers, etc. has done, the haze of media bias is cleared and real answers become apparent.