Payday Loans are Necessary Product
By Paul RizzoPayday Loan Writer
Lawrence Meyers is the co-founder of Payday Lender’s Capital, which provides financing for payday lenders. He penned the following, summarized article for The Independent Mail:
The guaranteed payday loan lending industry inspires much debate. Unfortunately, opponents couch this debate in emotion while rendering arrogant moral judgments rather than focusing on facts and basic economic reality.
Here are the facts: There is a need for short-term, unsecured credit. People living paycheck-to-paycheck have an occasional need for emergency cash. Options are limited. If you lack collateral, banks won’t give you a loan. Period.
So what happens if your car breaks down and you can’t get to work until it’s fixed? Will a bank lend you $300? A friend might, but asking may be embarrassing or not an option. Maybe you can get a cash advance payday loan from a credit union (if you’re a member), but that’ll take days if not weeks. You could write a bad check to the mechanic, but you’ll get dinged for $60 in fees.
Emergencies happen. That’s called “life.” A payday loan is a quick, convenient way to address emergency needs. They are neither the least nor the most expensive option.
Customers overwhelmingly endorse the product. There are 23,000 bad credit cash loan offices in the United States, assisting 12 million customers.
Now for the primary myths:
“Payday loans charge exorbitant fees.”
Exorbitant to whom? While opponents scream about “effective APRs,” they refuse to believe that customers don’t care about APRs. They care about flat fees. Period. Values are subjective unless you are a payday loan opponent and force your values onto the customer.
Opponents refuse to believe that consumers are actually smart enough to know what they are doing. They choose a payday loan because it is the right choice for them. It’s also worth nothing that between average default rates of 6 percent and monthly operational expenses of $9,000, fast payday advance offices require a minimum fee of $13 per hundred borrowed to generate any profit.
Capping fees below $13 or banning payday loans will drive lenders out of business but demand will not vanish. This de facto prohibition will force consumers to more expensive options. Price controls have never worked.
“Payday loans trap people in a cycle of debt.”
Really? Then why are 94 percent of no fax payday loans repaid? It’s true that a customer may trap himself by using a payday loan irresponsibly, but any product can be used irresponsibly. If you drink alcohol to excess, you may become an alcoholic. So why single out payday loans? Why not ban everything that might potentially harm someone!
Government cannot protect people from their own choices. America is about personal responsibility. Opponents don’t believe that. They insist everyone is a victim. Using this twisted logic, it is the “evil” liquor store salesman’s fault if his customer becomes an alcoholic.
This myth also defies economic reality. If more than a small minority used fast cash loans irresponsibly, the product would destroy its own customer base. Yet most stores have customers who repay their loan and return when they need the product again.
“Payday lenders loan to people who can’t repay.”
Borrowers must have steady employment, a bank account and can only be loaned 25 percent of one paycheck.
“Payday lenders take advantage of poor people.”
The average customer earns $40,000-plus annually.
So as letters to the editor flood in decrying online payday loans, note which of them address the facts (none) and which appeal to emotion while personally attacking the lenders (all).
That’s because the facts are not on the opposition’s side. They’ll cite studies by the biased, activist-funded Center for Responsible Lending, but payday loans have their own studies countering them. So whom do you trust?
Trust yourself, logic, and basic economics. The answers are there if you want to see them. And if you hate payday loans, then create an alternative product that helps consumers and allows lenders a reasonable profit. We’ll fund it.
