Let’s face it – the media has pretty much vilified the payday lending industry in recent years. Even people who never use the services of a short term lender know that online news sites and other media outlets routinely trash this particular industry. A new study that the Federal Reserve Bank of New York conducted seems to prove that many of the widely accepted beliefs about the payday lending industry are not true at all. In fact, the report actually demonstrates some situations and scenarios where payday loans can actually be more affordable than a traditional bank checking account.
Overdraft Fees are not cheap
The NY Federal Reserve Bank’s report revealed that the median overdraft fee on most checking accounts is around $27 for every returned check. And that amount does not even include the flat-rate fees that banks charge for these types of transactions. If you compare a typical payday loan, where someone gets charged around $15 for every $100 borrowed, it is easy to see that payday loans can certainly be more affordable than overdraft fees.
There is no other way to say it; the cost of bouncing a check or two is a lot more costly than paying the flat rate fees that payday lenders charge. Perhaps that is why so many people are taking out these types of short term loans lately. They know that their banks are taking them to the cleaners for bounced checks, so it makes more sense to get a payday loan to avoid draining their checking accounts. This may not be the case for everyone who takes out payday loans, but there are undoubtedly a lot of folks out there who have caught on to how the banks are raking them over the coals for even the smallest of overdrafts.
The study we mentioned was underwritten by the Community Financial Services Association of America. In the interest of transparency, it is only fair to mention that this group is a trade group for payday lending companies. An industry spokesperson, Johnny Gordon said, “When used correctly and for relatively small amounts, cash advance or payday loans can be both economical and convenient.”
The study went on to prove that payday loans are more accessible to people than traditional checking accounts and bank loans are. Gordon summed it up by stating, “Overdraft and other similar programs require extensive credit checks and comprehensive income documentation.”
One important fact that never gets brought up when people report on the payday lending industry is the fact that millions of people in this country either don’t have access to traditional banks or they choose not to use local bank branches to manage their finances. For these types of people, short term loans are often the best resources available when they are in need of fast cash for emergency expenses or simply to get by from one paycheck until the next one.
Without access to alternative financial services, like those that are regularly offered by payday lenders – both local locations and online lending websites – people who do not do business with the big banks, either by choice or because of their financial situations – would have no way to procure money to take care of their bills and other expense. It is a shame that so many people are working so hard to eliminate these types of lenders that may very well be the only sources of financial services that some families will ever have access to. These are the kinds of facts that need to be reported when people write articles to unfairly target the payday lending industry.