Short term lending is a very difficult issue. The number of payday loans taken out within the last four years in the UK has increased by over 400 percent. In states as diverse as Montana, Arizona, and Ohio, new legislation that limits payday lending has been passed. Federally, S.3245, the Payday Lending Limitation Act of 2010, seeks to extend the Truth In Lending Act to cap all pay day loans at 36 percent interest.
Understanding payday advance data
Understanding the payday loan industry and its customers is complicated by ubiquitous inaccurate and conflicting data. A recent record by Personal Money Store shows that though you will find many things about payday advances that are simply not supported by research. Most payday loan or short-term credit customers make over $ 47,000 in a year and have been working at one job for four years or more. More than 95 percent of borrowers confirm they understand the finance charges on these loans, while only 20 percent of charge card customers say they’re able to comprehend their credit card agreements, according to a creditcards.com analysis.
How payday lending works within the numbers
Over 20 percent of applications at brick and mortar payday loan stores are rejected. Up to 99 percent of online payday advance applications are rejected. Still, one of each five payday cash advances is written off as a default. The profit margin for most payday loan lenders is between 8 percent and 10 percent, compared to the 12 percent profit of J.P. Morgan and 27 percent profit Goldman Sachs reported to the Securities and Exchange Commission in April.
Educating the political debate
A careful and informed discussion of the issues surrounding short-term credit and payday lending has been lacking. With pending legislation in the Senate, 15 states that ban payday lending altogether and several states considering limitations, accurate statistics are vital.
