Payday Advance: Fact vs. Fiction

Fiction: Payday advance lenders prey on poor, uneducated and older consumers

Fact: Payday advance customers represent the heart of the working middle class

• Majority have incomes between $25,000 and $50,000
• 68% are under 45 years old; only 3. 5% are 65 or older
• 94% have a high school diploma or better; 56% have some college or a degree
• 42% own their own homes
• 57% have major credit cards; 49% are credit union members
• 100% have a steady income and an active checking account, both required for an advance

Fiction: Payday advance lenders target military personnel

Fact: The military represent a small percentage of payday advance customers

• A 2005 poll conducted by one of the nation’s leading pollsters (Penn, Schoen & Berland Associates) found that only 3. 69% of active duty military personnel have used a payday advance in the last five years, only 1. 18% had an advance outstanding

1. With an active duty military population of 1. 4 million, this incidence rate translates into 51,660 military personnel who have used a payday advance in the last five years and 16,520 with an advance outstanding

Fiction: Payday advance lenders charge outrageous rates

Fact: Payday advance fees typically cost less than customers’ alternatives

• Bank/merchant fees on one bounced check can cost three times that of a $100 advance
• Payday advance APRs are often lower than customers’ alternatives, even on same 2-week term

1. $100 payday advance with $15 fee = 391% APR
2. $100 bounced check with $54 NSF & merchant fees = 1,409% APR
3. $100 credit card balance with $37 late fee = 965% APR
4. $100 check with $27 overdraft privilege fee = 701% APR
5. $100 utility bill with $46 late/reconnect fee = 1,203% APR

• 96% of customers are aware of the finance charge; 78% recalled it being disclosed as an APR

Fiction: Payday advance lenders put customers into a cycle of debt

Fact: Most customers use payday advance responsibly

• 66% use payday advance to cover unexpected expenses or temporary income reduction
• Research & regulators confirm that most use payday advance moderately

1. The Credit Research Center at Georgetown University reported more than half use payday advance 6 or fewer times annually; 78% use it between once a year and about once a month
2. A 2005 study by the FDIC’s Center for Financial Research found that 72% of customers took out less than 12 advances per year, and the average was 7
3. State regulators consistently report 70-80% use the service between once a year and about once a month

Fiction: Payday advance lenders take advantage of unsuspecting customers

Fact: Across the country customers overwhelmingly appreciate the service

• Millions choose payday advance as a dignified, discreet, and often less costly solution for cash flow problems, without asking family for money or risking personal items as collateral
• 70% choose payday advance for convenience; only 6% because there was no alternative

• 92% of customers say payday advance is a useful service; only 12% were dissatisfied

• State regulators report very few complaints out of millions of transactions