New Federal Reserve Study on Payday Loan Users
Posted on Thursday, September 10th, 2009 at 5:27 pm in Cash Loan Info by State, Financial Planning, General Payday Loan Tips, Helpful Payday Loan Info, Miscellaneous Cash Loan Info
In January 2009, the Federal Reserve and the George Washington School of Business released a joint report entitled “An Analysis of Consumers’ Use of Payday Loans”. The paper, authored by Gregory Elliehausen, is the result of an extensive study of the economic and demographic profile of American payday loan consumers, how they use the loans and whether they benefit from access to this form of financing.
Elliehausen used findings from his 2007 survey of payday loan customers, together with existing data on the industry and its users, to put together this rather informative and measured monograph. One conclusion that might surprise critics of the cash advance sector shows that just 2% of adults in the United States hold active payday loans at any one time. Clearly it’s not a practice that’s threatening to overwhelm the country anytime soon.
According to the study, the typical payday borrower has a medium to low income, is fairly young and has children, has few liquid assets and uses other types of credit as well. Some of these consumers do have sizeable assets such as houses, but these may be difficult to tap into, so they also require short-term financial assistance from time to time. A large proportion of those taking out payday loans do so only during a certain period in their lives, and then progress to greater financial stability.
Borrowers are shown to make informed, deliberate decisions about taking out their payday loans. Many of them consider other types of credit before opting for a payday loan, and almost all are aware of the financial cost of obtaining one. The majority use their loans for the intended purpose of covering unexpected or urgent expenses.
Most customers use payday loans a few times a year for short-term financing purposes. However, a significant number use them often, and hold cash advances for over half of the year. Still, almost all users consider payday loans useful and give positive accounts of their own experiences with them. In the words of Elliehausen, payday lenders offer “a desired service to lower and moderate income, middle-educated, young American families.”
Here are some interesting numbers from the report:
* 63% of payday borrowers are heads of young families
* Just 10% are 65 or over, which refutes the claim that seniors are being exploited
* 28% of users make $25,000 to $40,000 a year. 39% earn more than $40,000
* There are more payday loan consumers who earn $50,000 or more than low-income users ($15,000 or less)
* 90% of borrowers have a high school diploma or better, and 54% went to college too
* Payday loan consumers tend to have limited credit options, but are still modest users of payday loans
* 81% can remember being told about the annualized percentage rate on their borrowing. They also know what the overall cost of the loan is
* As many as 86% of those who obtained faxless payday loans rate them as a “useful service”
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