The average loan amount a consumer will apply for is $400- $500 to help make ends meet until their next “payday”.  These short-term cash advance loans are unsecured.  This means no collateral has to be invested and there’s no risk of losing your house or car.  With the right lender, these payday loans are fast, secure and easy to obtain.  People who apply for payday loans are typically in need of breathing room to catch up from an emergency expense. What are those expenses?  They range from taking care of an unforeseen car repair to covering a forgotten check that showed up at the bank.

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The single item that payday loan opponents always trot out when they want to gin up legislators and the media is the Annual Percentage Rate (APR) of payday loans.  Since payday loans cost about $15 per hundred borrowed for a two-week period, the APR comes out to 390%. So, yes, it’s true that if a person took out a two-week loan, and rolled it over twenty-six times, they would be paying 390% APR.

What payday opponents fail to mention is that nobody rolls over a loan twenty-six times. This brings up an even more important discussion: do consumers even care what the APR of their loan is?  The answer is a resounding “no”.

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There are many credit products available for people in need of short or intermediate –term credit, but because the mainstream press doesn’t understand the demographics of the people who use these products, they rarely get the positive coverage they deserve.  When the media does manage to do stories on credit, they often confuse the facts regarding each type of product.  So for the benefit of the media and for consumers wondering what product might be right for them, this article will examine the differences between payday loans and installment loans.

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Payday loan opponents often use the word “usury” in describing the product.  Opponents casually toss the word out as if it’s self-evident.  Even worse, they point to the Bible as condemning usury, while failing to realize that payday loans fit neither the secular nor Scriptural definition of the word.

It’s time to examine what the word “usury” really means, and why it does not apply to payday loans.

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Half the payday loan stores in America are owned by independent entrepreneurs. They’ve scraped together $25,000 to open a single payday loan store.  On top of that, they’ve likely taken most of their life savings and borrowed from family, friends, and a bank. They’ll use that money to fund their $8,000 monthly overhead, the loans they make, and to pay themselves just enough each week to feed their family.

Overhead covers rent, utilities, one or two employees, signage, advertising, payroll taxes, software, computers, office supplies, and a few other items.

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The November 2008 FDIC Study of Bank Overdraft Programs (ODP) proved what payday loan borrowers have known all along: payday loans are a much cheaper short-term credit alternative than bank overdraft protection programs.

The data is astonishing, and unequivocally demonstrated that as consumer activists and grandstanding politicians decry payday lenders, they ignore the bloodsucking that occurs every time a consumer bounces a check.

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Payday lending had always been considered relatively safe in Ohio. Unfortunately, back in 2008, a political drama took place in the state legislature that subverted the will of the people. When it was discovered that a Democratic legislator had a spouse that lobbied for the payday loan industry, “business friendly” Republicans launched an assault on the product for purely political purposes.

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One of the myths regarding payday loans is that all customers get caught in a cycle of debt, taking out a new loan the day their original loan is due, and using the proceeds to pay off the first loan. However, the SEC filings of payday lenders prove that 94% of all loans are repaid on time.

Nevertheless, some customers do get caught up in this cycle. It raises a central question concerning not just payday loans, but of all consumer products. That is, should consumers be capped as to the number of loans they may take out in a given period, for their own protection?

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The primary opponent of payday loans is The Center for Responsible Lending (CRL), which says it is a “nonprofit, nonpartisan research and policy organization” working to eliminate predatory lending practices. The truth is that it is a public-relations front for an organization that seeks to put payday lenders out of business so that it can capture the payday loan customer base. Even worse, the CRL itself engages in predatory practices.

So what exactly does the CRL do? It is the PR front for the Self-Help Credit Union. CRL was founded in 2002. Under CEO Martin Eakes, the CRL has created a massive lobbying and PR machine purportedly to expose unethical financial industry practices on behalf of its parent company, the Self-Help Foundation.

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The biggest concern facing payday lenders and their customers right now is what the new Consumer Financial Protection Bureau is going to do to the business. What powers will it have? Who will run it? Will credit be regulated out of business?

So what’s going to happen? This article will try to advance some possibilities – both optimistic and pessimistic.

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