The payday loan industry is shrouded in mystery and secrecy from the inside. On the outside, looking in, it is vilified as one of the worst industries that take advantage of various people in all walks of life. However, America’s Community Financial Services Association has covered a recent study that indicates another face altogether.
The New York Federal Reserve Bank did a survey/study on the use of payday loans and found some astounding facts. The following analysis of these facts might help a skeptic understand how payday lending is still growing popular despite the political backlash.
Competing Programs and Payday Loans
Many competing financial institutions, such as banks, do not like the idea of a payday lending company. Not only do they put financial problems into the hands of unlicensed individuals, but they also charge far higher rates for loans without any collateral.
The study shows that banks are actually more likely to charge higher fees in some areas of their business. For example, the median price with payday lending was $27 for an overdraft, while a bank with deferred deposit credit can be $15 – $100.
The flat rate for OD providers can make it even pricier no matter what size loan. That can be construed as a way of making exorbitant amounts of money without needing to charge high percentage rates. They fall as high percentages of the overall loans for most of those who take money out.
The report seems to debunk some of the myths about the high prices of payday loans. Even though there is plenty of bad that goes on in the industry and lawmakers are currently rectifying the system, it does not mean that it is as bad as many people say.
Competitiveness and Formalities
When using payday loans, there are other advantages as well. Consider that time is money, and you will see the added costs of formalities that banks and other institutions cause. In some situations, the formalities can be costly, not just in time but also in money. There are a lot of different payments that these institutions often want.
Few will argue that payday lenders are scrupulous owners with great rates as far as competitiveness is concerned. However, the stereotype that they are the lender of last resort with the worst possible fees seems to be overblown. Perhaps it is overblown by the very banking institutions that wish they did not have competition from the payday lenders in the first place.
