|Survey reveals payday loan demographics|
|White women, blacks among the most likely users|
|Published Thursday, February 28, 2013 11:10 am|
A national study on the $7.4 billion payday lending industry could provide a glimpse at the implications for North Carolina consumers should a bill become law.
The Pew Charitable Trusts report “Payday Lending in America: How Borrowers Choose and Repay Payday Loans” details the demographics of 12 million Americans who use a payday loan. The survey found consumers trying to avoid long-term debt, borrowing from family or friends, overdraft fees, and cutting back on expenses. But with the average loan requiring a repayment of more than $400 in two weeks, the average borrower struggles to meet that standard. When they can’t repay on time, they resort to the options they originally tried to avoid.
“Payday loans are marketed as an appealing short-term option, but that does not reflect reality,” said Nick Bourke, Pew’s expert on small-dollar loans. “Paying them off in just two weeks is unaffordable for most borrowers, who become indebted long-term. The loans initially provide relief, but they become a hardship. By a three-to-one margin, borrowers want more regulation of these products.”
Payday loans could be on their way back to North Carolina, one of 15 states to ban the practice. A bill filed on Feb. 13 by N.C. Sen. Jerry Tillman (R-Randolph) would make the short-term, high-interest loans legal. Tillman, a Republican, is the upper chamber’s majority whip.
Senate Bill 89, which could come up for a vote as early as Tuesday, would legalize loans of 390 percent interest, according to consumer advocates. Lenders could make loans of as much as $500 for as long as 35 days and could charge fees of as much as 15 percent to cover operational costs, such as holding the check or keeping records.
A poll conducted Feb. 7-10 by Public Policy Polling shows 73 percent of North Carolinians support current limits on payday lending, compared with 7 percent who would like to see it legalized. Seven of 10 respondents say they’d oppose the law even if they knew it would create jobs and easier access to credit.
Findings from the Pew report showed:
• Fifty-eight percent of payday loan borrowers have trouble meeting monthly expenses at least half the time.
• 14 percent of borrowers say they can afford to repay an average payday loan out of their monthly budgets.
• 78 percent of borrowers rely on information from lenders—who sell these loans as a safe, two-week product—when choosing to borrow money.
• While payday loans are often presented as an alternative to overdrafting on a checking account, a majority of borrowers end up paying fees for both.
• Some borrowers ultimately turn to the same options they could have used instead of payday loans to finally pay off the loans.
• By almost a 3-to-1 margin, borrowers favor more regulation of payday loans.
Most payday loan borrowers are white women between 25 and 44 years old. However, after controlling for other characteristics, there are five groups that are more likely to use a payday loan: African Americans; people without a four-year college degree; home renters; people who earn less than $40,000 a year and those who are separated or divorced.
Pew’s survey found 5.5 percent of adults nationwide have used a payday loan in the past five years, with three-quarters of borrowers using storefront lenders and almost one-quarter going online. State regulatory data show that borrowers take out eight payday loans a year, spending about $520 on interest with an average loan of $375. Overall, 12 million Americans took out a payday loan in 2010, the most recent year for which substantial data are available.
Pew’s findings were drawn from a telephone survey of payday loan borrowers and 10 focus groups across the country.
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