Yesterday, as we blogged, the FDIC released a study showing that 821,000 households opted out of the banking system from 2009 to 2011 and that the unbanked population grew to 8.2 percent of U.S. households.

As a Washington Post article points out today, roughly 17 million adults are without a checking or savings account. Another 51 million adults have a bank account, but use pawnshops, payday lenders, or rent-to-own services, the FDIC said.

This goes to show that consumers are making the choice to use alternative financial services. As a reminder, there are certain requirements that a customer must have in order to obtain a payday advance:

• An active checking account,
• Proof of regular income,
• Proper identification,
• Upon completion of a simple application and approval, a borrower must read and sign an agreement containing disclosures required by the Truth in Lending Act (TILA), and
• Write a personal check for the amount of the advance plus the fixed fee.

When customers start to migrate and make the choice to use our services—which have collectively been called “alternative” but are now evident to be mainstream—this should be a tell-tale sign that consumers have the competency to pick what financial option works best for their given situation. More options for the consumer will force banks to lower prices and become more competitive in the marketplace. When this happens, consumers benefit.

Even payday industry critics understand the consumer’s rationale for choosing to use non-bank services:

“Banks need to have pricing and practices that consumers can trust and allow them to build wealth and have economic mobility,” said Deborah Goldstein, chief operating officer at the Center for Responsible Lending. “If the account fees will leave them worse off, then its going to be a challenge for people to use banking services.”

This is one of our critics’ main arguments against our industry, and last week, research was released that shows evidence that payday lenders do not target minorities. Donald P. Morgan and Kevin J. Pan with the Federal Reserve Bank of New York says that when it comes to research showing that payday lenders target minorities:

“Several studies have found that payday lenders are indeed more likely to locate in neighborhoods with disproportionately large Hispanic and/or black populations. Importantly, however, this literature uses data at the county or Zip code tabulation area, so the authors can’t really say which households are actually using payday credit. Nor can they control for household level income and other variables that might influence payday credit usage. The household-level data we study allows us to do both.”

Another important piece to NY Fed’s research: Unconditional Comparisons

“…Unconditionally, payday credit users and nonusers differed in a number of ways. The average payday credit user was younger for one, by about 11 years. Users were disproportionately female: 41 percent of users were female, while just 27 percent of nonusers were female. Single households, particularly single households headed by women, were disproportionate users of payday credit.

“There are obvious racial differences between users and nonusers as well, at least unconditionally. Consistent with the targeting critique, blacks and Hispanics were disproportionately represented among payday credit users. Blacks represented 22 percent of users, but only 12 percent of nonusers. Hispanics accounted for 15 percent of users, but just 9 percent of nonusers. By contrast, whites represented a larger share of the nonusers.

“There are some educational differences as well. Perhaps surprisingly, payday credit users are not the least educated members in society; users were actually more likely to have a high school degree or to have a GED than were nonusers. However, they were less likely than nonusers to have completed college.”

Go show your support for access to credit by attending the following event in Kansas City tonight. Communities Creating Opportunities (CCO) is hosting an event at Union Station to discuss ways to fight foreclosures, “predatory” lending, and what they call “other problems”.

The free event will be from 6:30 to 8:15 p.m. Parking will be available in the Union Station garage. Participants can register online at opportunitynow.eventbrite.com.

Today in Bloomington, IL, CRL will be hosting a grassroots rally that they say will encourage local lawmakers to place a 36 percent rate cap on payday loans, effectively placing a restriction on access to short-term credit for consumers.

We just wanted to remind our critics that recent evidence demonstrates that certain types of restrictions on payday advances, including annual loan limits and cost-prohibitive rate caps, drives consumers to financially risky and more expensive products.

Since 2009, 19 of the 32 states where payday lenders operate have rejected prohibitive rate caps. These states, which provide an important short-term credit option to consumers, have rejected prohibitive rate caps that would force regulated payday advance stores out of business.  On a federal level, Congress has also rejected rate caps on several occasions. Most recently during the debate on the Dodd-Frank­Wall Street Reform and Consumer Protection Act, Congress expressly prohibited federal regulators from establishing a national rate cap on payday advance fees.

Research shows that heavy-handed restrictions on payday loans have caused consumers to bounce more checks, pay more late fees, and experience more credit problems.

Installment lenders in today’s Kansas City Star rightly point out that a proposed ballot initiative in the state amounts to an all-out assault on consumer credit that would impact banks, credit unions, and others. We seen this before — righteous, but misguided efforts to help borrowers actually drive them to more expensive and credit-damaging alternatives…

“Removing installment loans as an option for borrowers will force them to look to black market sources or unregulated Internet lenders for the money they need. This must not happen. If Missouri must deal with payday lenders, it must do so in a significantly more targeted way.”

It’s Friday, and what better way to spend your day than chiming in on why access to short-term credit is so important. We’re happy to see that even our critics read our blog, and as you can tell by this post–they’ve chimed in. And we want our supporters to chime in too! Click here to see the comments on a recent post, and tell the Payday Pundit why the payday advance should be available to millions of hard-working Americans who understand and appreciate the service.

In a story that came out in The Missourian today, we were glad to see some reporting that had a balanced perspective, offering opinions from the opposition and also what would happen if you placed restrictions on payday lending. Who would be affected the most, you ask? Consumers, and access to much-needed, and affordable credit options…of course!

Saku Aura, an associate (sic) professor of public economics at MU, said he believes the ballot initiative could prove beneficial in some ways, but might make it harder for people to get credit in the long run.

While Aura acknowledged claims that people are struggling with these loans and making irrational decisions, he added that “it’s also true that many people are using this loan as the last resource because they don’t have access to any other type of credit.”

He said the ballot initiative could lead to the disappearance of payday lenders or a dramatic change in the services they provide.

Read the new report from the Center for Responsible Lending on payday loans provided by big banks and how they compare to more traditional storefront loans.

The Center for Responsible Lending has cut its first quarter lobbying fees (only $96,000 in the first quarter),  according to a disclosure report. That’s down from the $130,000 spent in the first quarter of last year, and $102,000 spend in the fourth quarter of 2010.

In the January-to-March period, CRL lobbied Congress, Treasury, the White House, the Department of Housing and Urban Development, the Federal Trade Commission and banking regulators such as the Federal Reserve, according to the report filed with the Secretary of the Senate.

Continued coverage from the WoonSocketPatch.com.

According to the article:

CRL estimates that $3 million per year is being sucked out of the Rhode Island economy by nationally run payday loan companies, such as Check ‘N Go of Ohio and Advance America of S.C.

IHS Global Insight conducted a comprehensive study analyzing the economic impact of the payday loan industry nationally and in states with storefront locations. Findings illustrate “measurable and significant” economic benefits to local economies directly through employment, compensation and taxes, as well as through indirect and induced relationships with suppliers and other industries.

SOME KEY FINDINGS:

The industry contributed over $5 million to Rhode Island’s gross state product (GSP) in 2007.

The payday lending industry supports 74 jobs1 in Rhode Island, including 42 people directly employed in13 storefront locations.

• The industry indirectly created another 10 jobs in supplier industries.
• Payday loan store and supplier industry employees induced the creation of 23 jobs through the purchase of goods and services using earned wages.

In Rhode Island, the total labor income impact from the payday loan industry is nearly $3.2 million:

• Through direct employment, payday loan stores contributed $1.7 million in labor income.
• Suppliers to the payday lending industry contributed $480,000 in labor income as an indirect result of the revenues generated by the payday loan industry.
• $1 million was generated from the wages of payday loan store employees and supplier industries’ employees as they were spent in Rhode Island’s economy.