There has been a great deal of negative publicity over payday loans, much of it centering on their high interest rates. What is often ignored, however, is the positive impact these small personal loans make in so many communities across America. For instance, recent studies have shown that after some states have taken the extreme measure of banning paycheck advances, consumers have fared worse instead of better. With fewer options to borrow money in an emergency, people with poor credit or low income often have nowhere to turn when these short-term loans are eliminated. Studies have also shown that after a natural disaster, communities with access to payday loans experienced lower rates of housing foreclosures and treatment for substance abuse than communities where they were not readily available.
In recent years, some legislators and policymakers have taken a knee-jerk reaction approach to payday lending. Instead of addressing the root causes underlying the endemic poverty and long-term debt in America during these tough economic times, some critics have recommended removing payday loans as a loan option for people who have few other financial resources. This approach is much simpler–and less effective–than examining these larger problems in our society to determine the underlying reasons why so many people are freely turning to payday advances as their only option. If alternatives to payday lending are so readily available as critics of the business suggest, things do not add up when millions of Americans continue to rely upon cash advances each year to help them cover unexpected bills. Clearly it is not payday lending that is the problem behind the current downward cycle of debt, but what is causing so many people to opt for this short-term financial service?
At the root of it all is the dire need for short-term credit in this country. It is virtually impossible for someone with bad credit to find the money they need for their basic living expenses if they fall behind on some payments. Payday loans offer an option that does not require the borrower to have a perfect financial past. For many people a cash advance is the only option, as traditional banking institutions routinely refuse to approve short-term loans to people with poor credit. Such inequitable policies demand an alternative that places less emphasis on good credit, and primarily focuses consumers’ needs.
Paycheck advances are so far from predatory that they have actually been shown to enhance the welfare of households. According to a study conducted by the Federal Reserve Bank of New York, “payday lending does not fit [the] definition of predatory.” Darrin Anderson, president of Community Financial Services Association of America, explained that cash advances actually contribute to the financial health of households by increasing their supply of credit. For millions of consumers, payday advances have provided a fast and easy way to pay utility bills, make automobile and household repairs and take care of other immediate family needs.
Critics maintain that the interest rates on paycheck advances are outrageous. Indeed, the rates are high, but they are designed that way because of their short-term nature. The price on a cash advance seems extreme when compared to longer term loans for houses or cars, but that is when they are compounded over a year, and payday loans are intended to be paid back in two weeks. Using a short-term product for long-term needs would certainly be expensive, but this concept is applicable to other temporary assets as well. For instance, you wouldn’t pay for a taxi on a road trip across the country, or rent a hotel room for months on end, just as you would not take out a cash advance for an entire year.
Increasing restrictions on payday lenders will only make it more difficult for individuals with little access to credit to cover their emergency needs. However, like any business, some lenders adhere to more virtuous business practices than others. Mypaydayloan.com is one of the only cash advance networks that makes courtesy calls to clients before they have a payment due. We aim only to fulfill our customers’ needs for convenient, emergency credit without leaving them in worse financial shape than they began.