Advance America: Most Payday Loan Clients are Responsible
By Paul RizzoPayday Loan Writer
Ken Compton is the chief executive officer of Advance America, the nation’s largest provider of payday advances. The company, based in Spartanburg, S.C., operates approximately 2,800 payday lending centers in 36 states, including Arizona. This Guest Opinion appears online only and not in the Tucson Citizen’s print edition.
Critics of the payday advance industry would like you to believe that unsophisticated consumers are lining up for cash advances only to be trapped in a debt spiral that pulls them deeper into financial peril.
Not a pretty picture to be sure - but not an accurate one either.
The truth is that most of our customers use payday cash advances responsibly, allowing them to overcome unexpected financial circumstances.
These individuals appreciate having access to a product that, with its comparatively low one-time fee, makes more sense than the burdensome costs and other consequences related to bouncing a check, missing a credit card payment or neglecting an outstanding bill.
According to state regulator reports, more than 95 percent of payday loans are ultimately paid and more than 90 percent are paid when due.
And contrary to the misinformation spread by industry critics, a payday advance must be paid back within a specified time period (typically two weeks), and the fee does not compound interest.
Millions of consumers choose to avoid excessive credit card late fees and interest, record high nonsufficient funds fees and other punitive costs for missed payments by utilizing our service.
Consumers are well aware of their options and discerning enough to make financial decisions that best serve their interests.
And contrary to our opponents’s exaggerated rhetoric, it is not our intention to undermine the financial health of our customers by offering consecutive cash advance loans on which the amount increases so much that they are unable to resolve them.
A recent staff report from the Federal Reserve Bank of New York concluded that instant cash loans are not a form of predatory lending - as some of our critics contend - and instead can help consumers by increasing credit.
In addition, the report asserts that consumers appear to be sophisticated enough to seek lower prices for credit products and finds that some of those who use payday advances do so to avoid missing other payments.
Arizona lawmakers have introduced a handful of bills this session to regulate the Arizona payday advance, which the Legislature authorized in 2000. Some of the measures sought to restrict the annual interest rate, or APR, for payday advances.
As required by federal law, we always disclose the APR for our product.
But we believe that annual interest rates are better used to assess the costs of long-term, high-dollar-amount loans such as mortgages, small business loans or car payments. Since most faxless payday loans span only a couple of weeks, the APR comparison seems to be an apples-to-oranges example.
Further, we see strong demand for our product, evidence that our customers see the fee model as appropriate for a very short duration advance, and that the price of the fee is proper.
Many of our customers do not, or cannot, use traditional financial institutions to help cover shortfalls or unexpected financial problems. And they are increasingly turning to payday advance centers for a cash-flow option, which most financial institutions find difficult to offer.
The growing demand for no fax cash advance loans is not, as some of our critics suggest, an insidious plot to strip poor, unsuspecting individuals of their hard-earned money.
To the contrary, millions of Americans are seeking a safe, simple way to confront financial struggles that are brought on by today’s economic realities. Advance America and other responsible payday lenders hope our elected officials will allow us to continue offering these consumers a dignified and private tool to handle their money.
