Industry News

What is Payday Advance by COMMUNITY FINANCIAL SERVICES ASSOCIATION OF AMERICA

The Deferred Presentment industry, also known as Payday Advance, cash advance or Payday loans, represent one of the fastest growing segments of the consumer finance industry.

Over the past decade, most states have created or maintained a regulatory environment that satisfies the robust consumer demand for these short term, low denomination loans. Working with CFSA, State policy makers have balanced the interests of the industry with substantive consumer protections that ensure responsible and informed use of the product. As a result, millions of satisfied consumers have enjoyed the convenience and economic benefits of Payday Advance services without complaint.

Consumers use the product responsibly and for the intended purpose: to solve temporary cash flow problems by bridging the gap between paydays.

Just as commuters understand that taxi services are valuable and convenient when used for short term travel needs but are inefficient for long term travel needs, consumers understand that Payday Advance services are economical and convenient when used for short term cash needs but are inappropriate to meet long term cash needs. To America's middle-class, the Payday Advance product serves as a dignified and cost efficient "financial taxi" to get from one payday to another when faced with an unexpected cash need.

Payday loans are just one of the many short term credit products used by middle class consumers.

Typical borrowers have a household income between $25,000 and $50,000, but they live on a tight budget that leaves little room for financial missteps or emergencies. The Payday loan helps these people get through a cash crunch without paying late fees or bouncing checks. (source Federal Reserve Bank of Richmond, Region Focus, Summer 2002)

Nearly all Payday Advance customers use credit other than Payday Advances and more than half have a bank credit card. (source Monograph #35, Credit Research Center, McDonough School of Business, Georgetown University, Washington, DC., April 2001)

Alternatives available in the marketplace are bank overdraft protection, paying bounced check fees, paying late payment penalties, pawn loans and others. Payday Advance fees are lower than many consumer alternatives. An example is the average nationwide $29 late fee on credit card payments. (source Consumer Action News, 2001-2002)

On a $100 payment, this $29 late fee would compare to a typical $15-$17 Payday loan fee. In both instances, the payment would ultimately be made from the consumers next pay check. A Payday Advance allows the consumer to maintain a clean payment record with the credit card company and costs nearly half the fee.

How does it work?

The borrower writes a personal check for the loan amount plus a finance charge, which ranges from $10 to $35 per $100. The lender doles out the money but doesn't deposit the check until a future date, typically within two to four weeks, when the borrower gets paid again.

The application process for Payday loans is fast and simple. It usually requires only a few supporting documents such as a driver's license, a bank statement, and a recent pay stub.(source Federal Reserve Bank of Richmond, Region Focus, Summer 2002)
Click here to go to the article: http://www.cfsa.net/mediares/bmediares.html