Right now, your friendly payday loan agents are working the phones, asking the regular customers if they wouldn’t like a little extra cash for the holidays.
Make no mistake, most payday loan users are regulars. A report this year by the federal Consumer Financial Protection Bureau found that almost 90 percent of storefront payday loans go to borrowers with seven or more transactions a year.
Repeat customers are the cash cow. If payday lending worked as it is often portrayed — as a helping hand to tide one over until the next paycheck — you wouldn’t see a quick cash business on nearly every corner in low-income neighborhoods of Kansas City.
The industry is touting a new poll that depicts a happy universe of customers thrilled with the chance to borrow at interest rates that nationwide exceed 300 percent when extended over a year’s time. In Missouri, the average annual percentage rate exceeds 400 percent.
“The survey found an overwhelming majority of borrowers are very satisfied or satisfied with their recent payday loan experience, carefully weigh the risks and benefits before taking out a loan, and value having the option to take a payday loan,” the industry reported.
Not surprisingly the poll, by Harris Interactive, was commissioned by Community Financial Services Association of America, a trade group for storefront payday lenders. (As opposed to online lenders, a truly insidious offshoot.) It is based on interviews with customers of four chains, including QC Holdings of Overland Park.
Almost all of the borrowers said they value having a place to go for quick cash. Ninety-eight percent said they were at least somewhat satisfied with the payday loan experience. They appreciated the customer service, convenience and simplicity.
Most said they understood the terms.
But customer satisfaction isn’t in dispute. Most storefront loan shops are friendly places where a customer can find a sympathetic ear.
The Pew Charitable Trusts, which conducted its own extensive research into short-term lending, acknowledged as much in a report.
But more than half the customers surveyed in the Pew report said they felt taken advantage of as their loans dragged out and fees piled up. “The stated price tag for an average $375, two-week loan bears little resemblance to the actual cost of more than $500 over the five months of debt that the average user experiences,” the report says.
Perhaps the message of the dueling surveys is that people with moderate to low incomes appreciate any lending option, even one they understand as destructive.
From a public policy standpoint, there is nothing good about 12 million Americans a year being saddled with interest rates that would make a loan shark cringe.
The practice sucks money from communities and squanders public assets. The Consumer Financial Protection Bureau found that nearly one in four borrowers use retirement income or government benefits to pay down their debts.
The Pew report looked at how payday consumers manage to repay their outstanding balances. Most eventually saved up enough money. But almost one in five said they borrowed from family and friends. Others used a tax refund, or pawned or sold possessions. A smaller number used credit cards or bank loans.
Some of those options are better than others. But, the point is, if they are available to repay a payday loan, they may be available to cover emergency expenses in the first place.
The industry’s business plan is about grooming a clientele, whether folks need the service or not. That’s the true aim of the holiday solicitations. Want to give yourself a gift that will keep on giving? Just say no.