Payday loan poll shows high satisfaction rates

Originally published in the Clarion-Ledger on 12/10/13.

PDF: Payday Loan Poll

More than nine of 10 consumers who used payday lending services report they are satisfied with the service, according to a poll commissioned by the trade association representing the payday lending industry.

The figures were released last week by the Community Financial Service Association of America (CFSA), reflecting the sentiment of 1,004 respondents surveyed by the respected polling firm Harris Interactive.

“The great majority of borrowers we surveyed said that, for them, payday loans are an important and valuable credit option that helps them overcome financial shortfalls,” said Humphrey Taylor, Chairman of the Harris Poll at Harris Interactive. “Our survey findings reveal almost all borrowers understood the cost of their loans and how long it would take to repay them.”

Payday lending often finds itself in the crosshairs of government and advocacy groups, who point to shortcomings of some players in the industry, as well as what many consider predatory practices, high fees and trapping consumers in cycles of debt. In some states, the industry has been curtailed or banned outright.

I’ve written in the past about some efforts by the Consumer Financial Protection Bureau, Federal Trade Commission and others to increase regulation and oversight. After one such post last spring, I was contacted by one payday lender who said, “I assure you I don’t have horns and a tail.” Fair enough.

The results of this poll are interesting, and it was a wise decision to commission the reputable Harris organization to do the survey.

Among the findings:

  • Ninety-seven percent of borrowers agree that their payday lender clearly explained the terms of the loan to them, including nearly nine in 10 (88 percent) who strongly agree.
  • Sixty-eight percent prefer a payday loan over incurring a late fee of approximately $30 (four percent) or an overdraft fee of $35 from their bank (three percent) when faced with a short-term financial crisis and unable to pay a bill.
  • Fewer than one in 10 said that a payday loan was their only option and they had no other resources available.

Without a doubt, there have been abuses, and regulators are right to keep a watchful eye to make sure consumers aren’t being harmed, while ensuring that consumers can choose. For their part, the industry has always vociferously defended itself, insisting that their products are filling a consumer niche for small loans, that their practices are no more predatory than other players in the financial industry, and that consumers are well aware of the consequences of short-term borrowing.

This study is just one set of data, but it demonstrates that the picture could be more complicated than it seems.

Phony payday-loan broker busted by FTC; points up risks of seeking Internet help

Originally published on clarionledger.com on 9/5/2013.

PDF: Phony payday-loan broker busted by FTC, points up risks of seeking Internet help

The Federal Trade Commission (FTC) has shut down a Tampa, Fla.-based operation that allegedly promised to help people get payday loans, but instead used their personal financial information to steal money from their bank accounts. The story highlights the dangers of trying to get financial assistance through the Internet.

The FTC has alleged that defendants Sean C. Mulrooney and Odafe StephenOgaga and five companies they controlled set up several websites to collect personal information, under the guise of promising to help get payday loans in as little as an hour from a network of 120 payday lenders. The pair allegedly lived the high life with their proceeds, buying fine cars such as Maseratis, Ferraris and Rolls-Royces.

The websites were under the names Vantage Funding, IdealAdvance, LoanAssistance Company, Palm LoanAdvances, Loan Tree Advances, Pacific Advances, and Your Loan Funding. Relying on information provided by consumers such as bank account numbers, routing numbers and Social Security numbers. More information about the operation is provided by the FTC and may be viewed here. “Repeatedly, we’ve seen situations where consumers provide sensitive financial information when inquiring about a payday loan online, and that information falls into the wrong hands,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection, in an FTC news release. “The FTC is committed to shutting down these fraudulent operations.”

The FTC notes that the scam targeted victims who were already in difficult financial circumstances. To add insult to injury, they often began receiving harassing telemarketing and debt collection calls shortly after the defendants made their unauthorized withdrawals, according to the FTC. Consumers who complained to the companies’ Philippines-based customer service agents were frequently offered refunds and $100 gasoline vouchers that never materialized, according to the FTC.

Unfortunately, such scams are becoming more and more common, as scammers prey on people looking for a way out of their financial problems. If you are looking for help, don’t respond to an Internet solicitation; make some calls to financial institutions on your own; calling a reputable credit counseling organization is a wise move. It’s a tough time for many families; unfortunately for some, criminals found a way to make their lives even harder.

Report examines effects of “payday lending” on consumers

via Report examines effects of “payday lending” on consumers | Consumer Watch, clarionledger.com, 4/26/2013

Short-term lenders are everywhere. It seems that every time there is a vacant storefront, there is a payday lender, check-cashing business or title loan company looking to do business. “Payday loans” — a short-term, high-interest loan intended to put a virtual band-aid on your checkbook until your next paycheck arrives — have been on the radar screen of consumer protection agencies for years. The problem is not just that the consumer borrows money, but that they keep rolling over the balance when they can’t pay it, resulting in high fees.

The federal government’s Consumer Financial Protection Bureau this week released a white paper on payday lending. The paper studied how much people are borrowing, how often, and whether that leads to debt.

There are some interesting facts revealed by this study. Only four percent of payday loans are made to consumers with income more than $60,000 per year. That should be no surprise; it has long been thought that the lower-income segment is the primary demographic of payday lenders. Most came from consumers at or near poverty level. Nearly 1/3 of loans were made to people making between $10,000 and $20,000 per year. More than half of those receive public assistance.

Payday loans are typically tied to the borrower’s payday, not just 14 days as is commonly believed. The study looked at how this affects consumers long-term. More than a third of borrowers take out between 11 and 19 payday loans per year, while 14 percent take out 20 or more loans.

There is a lot of money to be made in the payday lending business. Many lenders charge a fixed fee for every $100.00 borrowed. The median APR on a payday loan is 322%, with the average APR being slightly higher at 339%. The real cash cow for payday lenders are those frequent borrowers; 76 percent of payday loan fees come from those who take out at least 11 loans a year. This points to a long-term dependency, and a never-ending cycle of debt. A quarter of borrowers paid at least $781.00 in fees during a year.

But, as the payday loan industry is constantly pointing out, it appears that these lenders are providing a service to some, who use the services at low-to-moderate levels. “It appears these products may work for some consumers for whom an expense needs to be deferred for a short period of time,” notes the report. “The key for the product to work as structured, however, is a sufficient cash flow which can be used to retire the debt within a short period of time.”

The need for small loans, often a high-risk enterprise at which many traditional lenders have balked, is being filled by payday lenders. In some countries, this practice (micro-lending) is providing needed cash for short-term projects.

“However,” the CFPB notes, these products may become harmful for consumers when they are used to make up for chronic cash flow shortages. We find that a sizable share of payday loan and deposit advance users conduct transactions on a long-term basis, suggesting that they are unable to fully repay the loan and pay other expenses without taking out a new loan shortly thereafter.”