Payday Advance: A Cost Comparison
Payday advance fees are lower than many of consumer alternatives, even when expressed as an annual percentage rate (APR).
Consumer groups and academic researchers comment on the cost of payday advance versus its alternatives:
“We find that fixed operating costs and loan losses justify a large part of the high APR charged on payday advance loans…These operating costs lie in the range of [payday] advance fees, suggesting that payday loans may not necessarily yield extraordinary profits. ”
Payday Lending: Do the Costs Justify the Price, Center for Financial Research, Federal Deposit Insurance Corporation, 2005
“Critics also contend that [overdraft] bounce protection fees, as high as $37 per transaction, are little more than high-priced credit. ‘If a bank lends you $100 and charges you a $20 fee—and then you pay the money back in two weeks—that’s an annualized interest rate of 520%,’ notes Jean Ann Fox, director for consumer protection at the Consumer Federation of America in Washington. ‘It’s worse than a payday loan’. ”
Business Week, May 2, 2005
“Unlike payday lending programs, the extraordinarily high APRs in fee-based overdraft programs are never disclosed as such, and none of the other consumer protections are provided. Moreover, fee-based overdraft programs are aimed at the very same customers that payday lenders are seeking…and the costs rival or exceed those of payday lending. ”
Comment letter to Board of Governors of the Federal Reserve System from 90 consumer group organizational signators, January 27, 2003
“Interviews and industry survey indicate that payday loan customers do make a cost analysis in comparing the price of a payday loan with the alternative costs of bouncing a check and/or incurring late fees…When used on a recurring basis for small amounts, the annualized percentage rate for fee-based bounce protection far exceeds the APRs associated with payday loans. ”
Low-Cost Payday Loans: Opportunities and Obstacles, Annie Casey Foundation Report, June 2005
“Courtesy pay is not marketed as an alternative to a payday loan, but it serves a similar function when used as credit. Credit unions charge fees ranging from $15 to $35 to cover an overdraft. ”
Credit Union Payday Loan Alternatives, National Association of Community Credit Unions, December 2005
Source: Avg. NSF fee $27.40 (Bankrate.com, Fall 2006); Avg. merchant return check fee $26.64 (2006 CFSA Fee Survey); Avg. utility late and reconnect fee (2006 CFSA Fee Survey); Avg. credit card late fee (Credit Cards: Increased Complexity in Rates and Fees, Government Accountability Office, 2006); Avg. overdraft protection feed (Bankrate.com, 2005); Typical payday advance Fee (CFSA)
