Report offers boost for payday-loan industry
February 17, 2006 - Las Vegas, Nevada
The embattled payday-loan industry got an unlikely ally recently when the National Association of Community Credit Unions released a report outlining the public need for short-term, small-denomination loans.
"Payday lenders have grown dramatically in the past few years precisely because they are meeting both a need and a service banks and credit unions have failed to provide - convenient, small loans on a short-term basis," said the report.
The analysis of the industry hails its commitment to convenient service, in particular, singling out convenient hours that typically run well beyond most bank hours.
The most interesting portion of the report, however, assesses the high interest rates charged by payday lenders.
According to the report, a $100 payday advance with a $15 fee is equal to an annual percentage rate (APR) of 391 percent. A $100 bounced check with a $48 non-sufficient funds charge is equivalent, the report said, to an APR of 1,251 percent.
Similarly, the report said a $100 credit card balance with a $26 late fee would amount to an APR of 678 percent, and a $100 utility bill with a $50 late and reconnect fee would be equal to an APR of 1,304 percent.
"Many Americans are living paycheck to paycheck and lack a cushion for emergencies," said Lois Kitsch, director of field projects for study participant Filene Research. "You run out of money before you run out of month. You don't want your co-workers or family to know; payday lending is quick and anonymous."
The study also addressed perceptions that payday loan customers are low-income, desperate borrowers.
The report said that 68 percent of payday loan customers are under 45 years old, 4 percent are more than 65 years old, 82 percent have a high school diploma and 52 percent have a college degree. Another 42 percent own their own homes, 66 percent use payday loans to cover unexpected expenses or a temporary reduction in income. A full 96 percent are aware of finance charges.
Additionally, the report said that a survey of 47 credit unions in three states showed that more than 90 percent of the institutions surveyed said some of their members are payday loan store customers. More than 50 percent said some of their employees are customers.
In Business Las Vegas, Kevin Rademacher, Staff Writer
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