Everyone Hates Payday Loans – Except the 12 Million People that Use Them
In the history of the United States, few legitimate businesses have been attacked with the fervor and animosity that critics have been directing toward payday lenders. President Obama has spoken out against payday loans, and some of his top aides met with a coalition of religious leaders recently to discuss the need to regulate the industry. When comedian Sarah Silverman was a guest on Last Week Tonight, she and host John Oliver urged consumers to consider an alternative to payday loans as “literally anything else.” Several states have already enacted legislation that bans or severely limits payday lending. Credit Karma calls payday loans “just bad news.” The Consumer Financial Protection Bureau, commonly known as the CFPB, has led the charge to regulate the payday lending industry and has recently released its proposed rules that could potentially force payday lenders out of business. All of the publicity generated by politicians, celebrities and consumer agencies might lead you to believe that everyone hates payday loans and payday loan stores — yet more than 12 million Americans use them.
Why Would So Many People Choose a Universally Hated Financial Product?
If payday loans are as bad as the critics proclaim, why do so many Americans use them? In simple terms, it is because most of the borrowers do not hate payday loans. Borrowers tend to view payday loans as an integral part of their finances. Many do not have access to other means of dealing with a financial crisis. They may be among the 29 percent reporting zero savings in response to a survey conducted by Bankrate.com or among the 28 percent of Americans who do not have a credit card. They may not have family, employers or friends with the ability or willingness to loan them money in an emergency.
Many of the borrowers who seek payday loans are living paycheck-to-paycheck. This does not necessarily mean that they are poor. A report from CNN revealed that 12.5 million Americans with a median income of $21,000 lived paycheck-to-paycheck, but 25.5 million people with a median income of $41,000 did the same. A paycheck-to-paycheck existence means that these people will have greater difficulty weathering a financial shock; an illness or death in the family, a major car repair or variations in income can force them to choose between buying groceries, paying rent or keeping the utility company from disconnecting service.
Do Borrowers Require the Government’s Protection?
Opponents of payday loans tend to paint borrowers as financially naïve and easy targets for unscrupulous lenders. However, studies do not support this generalization. For example, a survey conducted by Harris Interactive and commissioned by the Community Financial Services Association of America paints a very different picture. The study found that more than 90 percent of the borrowers reported that their costs were as expected or better than expected, and 84 percent stated that it had been “somewhat easy” for them to pay off their loans. Approximately 93 percent said that they had weighed the benefits and risks carefully beforehand, and 89 percent reported that they calculated the total cost. Perhaps what is most telling is that 95 percent of the respondents felt that taking out a payday loan should be their decision — not the government’s.
Are Payday Loan Regulations Another Example of Government Paternalism?
In recent years, there have been many examples of laws that have been passed in an effort to protect Americans from themselves. One example was the short-lived ban on sugary drinks over 16 ounces that was in effect in New York City from 2013 until June 2014. Another example would be the counties in California in which health inspectors have gone to the homes of customers purchasing raw milk and attempted to force them to surrender their milk. There are several school districts in which the lunches children bring from home are inspected to determine whether the lunch meets dietary guidelines.
In an article appearing in Psychology Today, Mark D. White, who chairs the philosophy department at the College of Staten Island/CUNY, offers some interesting insights on paternalism. He notes that paternalism involves external judgments of what others should or should not be doing; since no one knows more about an individual’s goals or needs than the individual, policymakers are not truly promoting the interests of the individuals affected. Furthermore, although he agrees that the government should help citizens get to where they want to go, he argues that the best way that the government can accomplish this is to let people make their own choices.
Are Payday Loans Right for Everyone?
Payday loans are not an ideal solution for everyone, but that does not mean that the millions who rely on them should be denied access to them. A payday loan should be treated like any other type of credit. Borrowers should use payday loans wisely and consider how they will repay the loan before accepting the money. To learn more about payday loans, visit PersonalMoneyStore.com.