Home > Payday Loans > The Payday Loans Industry A Growing Crisis
The Payday Loans Industry A Growing Crisis |
|
Payday loans are short-term transactions in which customers borrow against their paychecks by postdating personal checks in exchange for cash and service charges. For example, if you need $100, you write a check to a payday lender for $115 and you get $100 in cash right away. Two weeks later, the payday lender
cashes your $115 check. But, most payday lenders make the bulk of their money through rolling over loans. And consumers tend to roll over loans about seven times. Payday loans are also called check loans, payroll advance loans, deferred deposit transactions, postdated check loans, or cash advance loans. Regardless of what you call them, they're part of a thriving industry called fringe banking because their opponents claim they operate on the fringe of legitimate banking practices. Fringe banking outlets, check cashers, pawnshops, title loans, rent-to-own shops, finance companies, and mortgage firms, providing payday loans, have increased across the country. These banking options are poorly understood by the general public and by most traditional financial institutions. According to Community Financial Services Association of America (CFSA), typical payday loans customers are responsible, hard-working, middleclass Americans. The average age of their customer is 35.6 years old, and on an average earns about $33,187 per annum. They have lived at their current residences for an average of 4.5 years, and have worked their current jobs for about four years. Thus, all their customers are people with jobs or regular incomes, and active checking accounts. And about one-third own their home. Then why do they take out payday loans. CFSA says that consumers choose payday loans to cover unexpected expenses, bridge short-term cash needs or to avoid bounced check fees, late payment penalties, or pawning personal possessions. A Florida based company, that has done his own research, agrees with the CFSA, that there are many middle class consumers who opt for payday loans. But they are not the only group in society using pay day loans. The credit union conducted focus groups with members and nonmembers living in the community whom a new credit union service organization (CUSO) will soon serve, and found that there are many low-income community residents who are also using payday loans. They turn to check cashers and pawnshops because these organizations provide products, services, and overall convenience, that banks, and even credit unions don't. And six of 10 users don't need the money for emergencies, but for discretionary purchases, such as new televisions. This kind of behavior and excessive use of payday loans are connected to another problem- the lack of savings. In fact, consumers' lack of savings is the actual crisis in the making, According to the executive director of the Consumer Federation of America (CFA) the typical U.S. household has less than $1,000 in financial assets, after subtracting debt. Also, kids and adults aren't getting any smarter about personal finance and savings concepts. The end result, many Americans have no savings at all. However, the credit unions have the power to avert this crisis. They need to educate the public about payday loans. They should encourage their member to save. Credit unions are unlike other financial institutions. They have to fulfill a social mission. Early education is a critical element to success, which is why the CUNA, a credit union, has formed a partnership with the National Endowment for Financial Education to bring personal financial education to high-school kids. At the Florida Central Credit Union, they work to educate members and potential members on adverse effects of payday loans, especially through employee groups about payroll deduction. They also show their members how they can automatically save a certain amount each month which can then be used for a specific purchase. And when their members want to withdraw all their money to make that purchase, the credit union might finance them if they are eligible. It is estimated that, the payday loans industry will increase to from 7,000 today, to about 25,000 outlets in the next six to eight years. While it's apparent, payday lenders and check cashers are filling a void the traditional banking industry has avoided, it's also clear credit unions are working hard to offer viable alternatives with innovative products, services, and community partnerships. |
|
| ------------------------ |
|---|
|
|
| ------------------------ |
|---|
|
|
|
|
| ------------------------ |
|---|
|
| ------------------------ |
|---|
Custom Search
|
| ------------------------ |
|---|
|
|
| ------------------------ |
|---|
Consumer Alerts | About | Bookmark Us | Contact | Espanol | Privacy Statement | Copyright | Terms & Conditions | Financial Widgets | SiteMap
Copyright © 2006 Credit Loan, LLC. 235 APOLLO BEACH BLVD, STE 218 Apollo Beach, Florida 33572 All rights reserved.
Disclaimer: The content provided on CreditLoan.com is for informational purposes only; do not make any financial decisions based on its content. Financial decisions are personal, based on an individual's situation. Consult with a financial professional before making any financial decisions. CreditLoan.com is not liable for your financial actions.
