Nearly 10 percent of Virginia households have used short-term credit in the form of payday, pawnshop, and auto-title loans.

A study by the University of Virginia’s Weldon Cooper Center for Public Service released Tuesday shows that more than 275,000 financially struggling families in Virginia have turned to alternative financial-service providers to pay for basic needs such as food, housing and transportation. They also are using the high-cost loans to pay for unexpected expenses stemming from job losses, car repairs and medical bills.

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Nearly 120,000 Virginia households — 4 percent — used payday loans, according to the study, which analyzed 2009 national banking statistics from the Federal Deposit Insurance Corporation.

Terrific piece in Businessweek:

Assessing the usefulness of innovations can be difficult. Progress Financial in Mountain View, Calif., doing business in the state as Progreso Financiero, makes small, short-term loans to low-income Hispanic customers via desks in supermarkets and other convenient locations. California limits effective interest rates on such loans, factoring in fees, to around 36%. Sounds reasonable, but Progress Financial CEO James Gutierrez says the cap is stunting the growth of the sector, noting that firms like his are competing with payday lenders that can charge effective annualized rates of 400%.

The banking industry is concerned that the potential Federal Reserve clamp down on “unfair and deceptive” practices” could cost it to lose $10.6 billion in interest on credit cards.   Now that $10.6 billion is just a percentage of the industry’s revenue from credit cards.

By comparison, the payday lending industry’s total revenue was approximately $8.6 billion in 2007. 

Stung by allegations of charging high interest rates, Microfinancers are considering a “truth-in-lending” type standard to apply across the industry.   From the BusinessWeek story:

In an effort to head off a potential crisis in the fast-expanding microfinance industry, its leaders are adopting global truth-in-lending standards and creating a system for comparing loan terms offered by competing lenders. To manage the effort, a new self-monitoring organization, MicroFinance Transparency, is being set up as the industry’s policeman. The goal is to prevent companies from taking advantage of poor people with high interest rates and misleading credit offers.

The initiative was announced on July 28 at a microcredit conference in Bali by Chuck Waterfield, a professor at Columbia University who spearheaded the initiative, and Nobel Peace Prize winner Muhammad Yunus, who launched the microcredit revolution in Bangladesh 30 years ago with his Grameen Bank. “Microfinance emerged as a struggle against loan sharks, so we don’t want to see new loan sharks created in the name of microcredit,” Yunus tells BusinessWeek.

Unlike payday lenders whose primary customers are America’s middle class, microfinancers lend to the poorest of the poor.  It would seem that truth-in-lending standards should be the minimum starting point for this industry. 

A new study says that payday lenders locate in communities with large Christian conservative populations. This on the heels of  prior allegations that payday lenders locate in communities with high populations of minorities, women, immigrants, the elderly, the poor, the middle-class and now conservative Christians. A recent BusinessWeek article even said payday lenders are now targeting more affluent neighborhoods.

Who’s left? This is preposterous.  

The only thing payday loan customers have in common is that they all have steady sources of income and bank accounts and sometimes have unexpected or unbudgeted expenses that require cash between paychecks.

While critics of the industry assign labels to payday lending customers in an attempt to further their political agendas, the fact is that payday lenders provide services to a broad cross section of Americans because there is a broad demand for the financial service provided. Payday lending customers represent a broad demographic segment and cannot be grouped based on race, sex or religion.

Full CFSA press release