Friday, August 03, 2007
Payday lenders provide a needed product
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A. David Davis
Davis is Check 'n Go president and CEO.
Propaganda put out by so-called "consumer activists" against cash advance companies continually misleads everyone from elected officials to reporters to the general public. Even worse, these extremists may be hurting the very Virginians they claim they're trying to help by advocating to eliminate an available credit option for those consumers they purport to represent.
Cash advances are a necessary product responsibly delivered to reasonable people. Cash advance opponents, such as Virginians Against Payday Loans in Newport News, claim the industry targets poor people, charges exorbitant fees and is growing at an alarming rate. They also call for several regulatory measures, including a 36 percent or 72 percent annual percentage rate cap on cash advances.
The cash advance industry exists, like all industries, because of enormous consumer demand. Nearly all banks and credit unions will not provide short-term, single-payment loans. Cash advance stores provide hard-working people with a reasonable, well-regulated option for meeting unexpected expenses and short-term financial needs.
Contrary to the image detractors put out there, cash advance customers are not poor people; they have jobs and reliable income. They are your neighbors. Most earn $25,000 to $50,000 per year and more than half have a degree or college education. All have checking accounts.
In most states, a cash advance fee is capped at about $15 for a $100 loan. To reach the 391 percent APR detractors claim cash advance stores charge, a two-week loan would have to be "rolled over" 26 times. State laws and our industry's best practices prohibit these excessive rollovers. The cash advance industry consists of short-term lenders -- measuring our product against an annual percentage rate is misleading.
A 36-percent APR cap championed by activists -- again, which doesn't make sense for short-term loans -- would mean the fee charged on a $100, two-week cash advance would be $1.38. That would not even cover basic business costs for lenders, forcing consumers to use more costly alternatives such as pawn shops, bouncing checks or costly late fees.
The cash advance industry is taking unprecedented, voluntary actions to teach consumers about cash advances by launching a substantial consumer education campaign and community-based financial literacy program, not using hypocrisy to lure "victims" into debt as the opposition would claim. Plus we are working to provide extra repayment time to customers who need it -- extra time with no extra fees.
As a new and growing industry, the cash advance industry is evolving to meet the need of customers and the communities in which they live, and we're doing it responsibly. I can't say that the opposition is taking the same approach.
