The Truth About Payday Lending

Myth #1: Payday Loan Customers are Poor and Destitute

Reality: Our Customers are the heart of America’s Working Middle Class

  • All have bank accounts and jobs or steady sources of income
  • Majority make between $25,000 and $50,000 a year
  • Average income is about $42,000 annually
  • About 20% make MORE than $50,000 a year
  • Majority have credit cards, are married and have children
  • 42% are homeowners
  • 94% have a high school diploma

Myth # 2: Payday Loan Customers are Trapped in a So-Called “Cycle-of-Debt”

Reality: Our customers understand our fees, and the vast majority of them meet their loan obligations without financial difficulty. (And we provide solutions for those who do find themselves in financial difficulty.)

  • Vast majority of customers – more than 90% – use our products responsibly and pay their loans off according to loan terms
  • For the small minority who – for whatever reasons – find themselves unable to meet their loan obligations, the new CFSA Extended Payment Plan provides a safety valve for any customer, at any time, for no charge.
  • Individual payday loan companies have always worked with their customers to create extended payment plans
  • The small minority unable to meet their loan obligations typically have deeper financial management issues unrelated to payday lending
  • For those people, we suggest credit counseling and financial literacy programs

Myth #3: Outrageous Payday Loan Fees Generate Exorbitant Profits

Reality #3: Payday Loan Fees – and Profits – are Average and Often Lower than those of Banks & Credit Unions

  • APRs are irrelevant to short-term loan products
  • Industry critics regularly confuse “APR” with “interest”
  • $17 fee for a $100 loan = 17% interest
  • APRs for Competitive Credit Products
  • $100 payday advance with a $15 fee = 391% APR
  • $100 bounced check with $54 NSF/merchant fees = 1,409% APR
  • $100 credit card balance with a $37 late fee = 965% APR
  • $100 utility bill with $46 late/reconnect fees = 1,203% APR

No payday loan customer would ever experience such exorbitant APRs

  • To do so, one would have to roll the loan over every two weeks for a year
  • Not only is that impossible to do, it also violates state laws and CFSA Best Practices, which limit all customers to 4 rollovers

Payday loan industry profit margins are comparable to – and in many cases less than – those of other industries.

  • Payday loan industry profits are average: 6.6% net income as a percentage of revenue (fiscal 2005 average of the 5 publicly traded PDL companies)
  • Ironically, the payday lending industry’s profit – or net income for every $1 of revenue received – is lower than other financial services companies, including our chief critic – credit unions
  • Banking industry profit margins can be four times as high as the payday loan industry average (US Bank, 36%; Bank of America, 30%, Wachovia, 26%)