Description of a Common Pay Day Loan Consumer

The quick cash loan industry is successful and is growing more quickly than anybody could have predicted a few years ago. Nowadays there are more payday cash advance stores across the country than there are McDonald's, Burger King and Subway restaurants combined. That is a whole lot of shops. And the business is now under a great deal of fire lately because the interest rates charged for cash advance loans are at best usurious and at worst, predatory. There is little else that can be used to describe rates of interest that generally exceed 400% per year.

The industry defends its position, pointing out that A) they're providing convenience and B) the rates of interest they demand aren't actually interest payments, they are service fees and C) the loans are for periods of fourteen days, rather than 12 months, so the yearly interest rate is irrelevant. These justifications can be debated at length, but the loans are still well-liked despite laws and regulations that demand that the lender disclose all the terms on paper. The thing that the lenders argue that most likely does not hold water is the assertion that their average consumer is not poor, but instead a part of the middle-class who just borrows from their stores for convenience.

Studies suggest otherwise. A recent study conducted in Arkansas offers a decidedly distinct picture from the rosy one suggested by the cash advance loan business:

According to the study, half of the respondents declared that they sent applications for a bank loan prior to obtaining a payday loan but were denied due to a background of poor credit.

More than 75 % of debtors did so for the reason that they were receiving threatening calls from creditors to whom they owe cash.

Sixty-six per cent of participants said they took out a payday loan because they just had no alternative.

This strongly suggests that the main beneficiaries of these quick cash loans really are the operating poor. Not only that, but they don't obtain these loans because they're convenient, but because they're literally the sole opportunity to borrow cash to pay expenses or survive until the next payday. It's a rather unfortunate scenario when the only readily available source a few individuals have to acquire cash is one that charges a minimum of four hundred percent annually. Regrettably, for many people, payday cash loans are their only option, as conventional banks often don't lend small sums of money and insist upon inflexible lending criteria.

The market continues to decide whether or not these stores will continue to operate. After all, if no one desired these products, nobody would purchase them. In the meantime, legislators in a lot of states continue to try to find solutions that will permit these taxpaying firms to stay while protecting the consumers who clearly have no other place to turn. There isn't any easy solution, as the lawmakers in South Dakota have found. They established loose financial laws to attract banking institutions to the state, only to see cash advance shops appear on every street corner. Obviously, lax banking legislation is a double edged sword.