What More Payday Loan Stores than McDonald’s and Starbucks Franchises Says about the Economy
A sweep of current headlines on the state of the economy portrays positive signs: robust house sales, steady unemployment rates and rising personal income. However, analysis of the payday lending industry paints a very different picture of the economic conditions of middle-class America.
Despite restrictions on cash advance practice in almost one-third of the nation’s states, there are more payday lending storefronts than locations for two of America’s most popular fast-food chains. According to Statistica.com, there are 14,259 McDonalds and 10,843 Starbucks. In contrast, there are more than 20,500 storefront and online payday vendors, says the Community Financial Services Association of America (CFSA).
Payday Loans Represent the Face of America
Representing an estimated 19 million households, “payday advance customers are the face of America,” asserts the CFSA. The $38.5 billion industry supports mostly young families and the stable working class, those who are trying to stay afloat between paychecks. Earning between $25,000 and $50,000 annually, these are the citizens who have few assets, lack access to lines of credit and don’t have adequate savings to handle unexpected expenses.
Many are struggling just to pay the bills, points out a survey by Bankrate.com, which found that staying current on monthly expenses and catching up on past due bills are the primary financial concerns of 41 percent of Americans. For some, payday loans are a safety net to keep the lights turned on or refill the kitchen cupboards until the next deposit arrives. Others have come to rely on cash advances as a stopgap after repeatedly being unable to stretch their monthly disability, retirement or public assistance payments.
Payday Loans Bail Out Cash-Strapped Citizens
Despite a recent push by the federal government to increase minimum earnings, the national minimum wage has not risen from $7.25 per hour since 2009. This is the same year when America entered its worst recession in decades. The U.S. Department of Labor notes that the current rate has significantly weaker buying power for such necessities as housing, gas and food.
The current headlines proclaiming a need to raise the minimum wages to between $12 and $15 per hour only capture part of the picture considering the regulation would directly affect just 4 percent of American hourly paid workers. An additional 26 percent of the workforce is currently classified as low-wage earners. While these workers are bringing home more than the minimum, they are nowhere near the proposed reforms, which are often touted as a “living wage.”
According to research conducted by The Pew Charitable Trusts, ordinary Americans across the demographics spectrum rely on payday loans to cover their everyday, ongoing living expenses for an average of five months each year. The majority of survey respondents — a whopping 69 percent – said that payday loans help them juggle utilities, credit card bills, groceries and housing notes. Only 16 percent tapped their local payday advance store to finance unexpected expenses, such as major car repairs and emergency medical situations.
Regulation of Payday Loans Could Hurt Americans
With the median size of the payday installment loan ballooning to $1,291, the Consumer Financial Protection Bureau (CFPB) is stepping up its efforts to regulate the payday loan industry. As cash advances are coming under heavy fire in the media for charging exorbitant fees and creating a cycle of debt, few are focusing on the limited alternative resources that payday customers can access for covering their financial obligations.
The fact that so many cash-strapped Americans are relying long-term on a solution that was originally intended for short-term assistance is a major indicator that excessive legislation could potentially create an economic disaster. Without access to conventional loans, credit cards or emergency funds, low-wage earners could spiral further into debt as they try to manage their chronic cash flow shortages.
Since the early 1990s, payday advance services have provided a valuable source of credit. Due to rising costs, stricter regulations and high default rates, the traditional financial services marketplace has opted out of issuing quick cash to those without the right income, assets or credit scores. Combined with the recent recession that not everyone has yet recovered from, a growing consumer base dubbed the “new middle class” has sprouted across the U.S., making payday lenders more popular than McDonald’s or Starbucks.
Without this source for small-dollar, short-term loans, there would be far more overdraft fees, bankruptcies and credit score dings. To learn more about how payday loans are a vital resource for the American economy, visit the PersonalMoneyStore.com.