Consumers Prefer Credit Unions to Payday Lenders
The CFPB has payday loans on its radar – and it turns out many Americans do too.
According to a survey by The Pew Charitable Trusts, only one in 10 Americans view payday lenders positively and a vast majority want to see more regulation over payday loans. Payday loans are popular for individuals who need a temporary loan but cannot use a traditional loan method due to poor credit, and for those who don’t want to go through the underwriting process. However, despite being used by 12 million Americans in 2010 – the last year during which a significant payday loan usage study was completed – 84% of Americans say the fees are unfair.
The average loan, according to The Pew Charitable Trusts, is worth $375, and the fees paid for every two weeks of borrowing is $55 in-store and $95 if the loan is taken out online. The loans typically take 36% of the borrower’s pretax paycheck and significantly hinder the borrower’s ability to pay other bills without relying on a secondary payday loan.
According to Pew, that’s exactly how payday lenders make money. Eighty percent of payday loans are originated within 14 days of a previous loan, and half of all loans occur within a sequence of 10 loans or more, according to the survey. Most borrowers were found to take out eight or more per year.
In addition, the average borrower remains in debt for five months and pays a fee of $520 on a $375 loan. The poll also found that most borrowers (72%) favor using at least some of the payments toward the principal of the loan, while 90% favor allowing borrowers more time to pay back loans in installments rather than all at once.
While few Americans view payday lenders positively, 62% see credit unions in a positive light, Pew found.