“Transparent”
October 5, 2009 | USA Today, alternatives, industry | Comments (0)CFSA’s D. Lynn DeVault has a strong letter in USA Today’s online edition today:
USA TODAY’s article “Anger at overdraft fees gets hotter, bigger and louder” rightly points out that payday loans are often less costly than so-called overdraft protection.
Payday loans offer additional benefits over bank overdraft fees because the cost of the loan is transparent and easy to understand, and all of our customers choose to take out the loan, rather than being automatically enrolled. Payday loans typically cost $15-$17 per $100 borrowed, due on the borrower’s next payday. Member companies of the Community Financial Services Association of America post these fees in large print and ensure that customers understand the cost before making the loan.
In his research, Gregory Elliehausen of George Washington University called payday loans “a simple product.” He found that “nearly all payday advance customers are aware of the finance charges for their most recent new payday advance.” In contrast, many do not know that they are enrolled in overdraft protection or when a transaction triggers a fee.
Payday loan customers can use overdraft protection for short term credit instead of a payday loan, but they choose payday loans. Elliehausen found that “nearly half (of payday loan customers) considered other sources of credit before obtaining a payday loan.”
Payday loans’ transparent, easy to understand, opt-in fee structure is one of the reasons that customers consistently choose payday loans and report satisfaction with the product.
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