Research on payday advance has been conducted by a number of sources. Most notably, the Credit Research Center at Georgetown University’s McDonough School of Business produced the first impartial observation of payday advance customers and their use of the service. Following release of the national study, an independent research firm was commissioned by the industry to conduct similar customer surveys in six geographically dispersed states. In the state and national studies, more than 3,000 customers were surveyed and the results were strikingly similar. The studies present a clear and consistent picture of payday advance consumers.
Georgetown University’s Credit Research Center Report — “Payday Advance in America: An Analysis of Customer Demand”
In April 2001, the Credit Research Center released the first-ever, comprehensive economic analysis of consumer demand for and use of payday advance services. Conducted among a nationally representative sample of customers of CFSA member companies, survey findings included the following:
- Customers overwhelmingly appreciate payday advance.
- 92% believe it’s a useful service.
- Over 75% were satisfied with their last transaction, only 12% were dissatisfied.
- Customers use the service responsibly.
- 66% use it to cover unexpected expenses or a temporary reduction in income.
- 34% use it for planned or discretionary expenses.
- Customers understand the cost of the service.
- 96% were aware of and reported the finance charge and could compare it with similar fees.
- 78% could recall that the fee had been disclosed as an APR, although most could not recall the rate.
- Most customers use payday advance infrequently or moderately.
- 60% either did not renew in the last year or renewed only 1-2 or 3-4 times. (“Renewals” include both rollovers and advances taken out the same day another was paid in full.)
- Most customers fit the expected economic profile of consumers in early life-cycle stages.
- Most are middle-income, middle-educated young families.
- 42% own homes and 100% have steady incomes and checking accounts.
- Nearly 94% have a high school diploma or better, with 56% having some college or a degree.
Io Data Corporation — “Payday Advance Customer Study” and “Cumulative State Research Report”
During 2001 and 2002, Io Data Corporation released a “Payday Advance Customer Study” for each of six states including California, Colorado, Illinois, North Carolina, Utah and Washington. The surveys obtained payday advance customer information regarding demographics, motives for using the service and perceptions of borrowing alternatives. The Georgetown study was used to validate findings in the state studies by comparing payday advance customers in each state to the national customer sample.
A “Cumulative State Research Report”, issued in September 2002, presented consolidated and comparative results of the six state reports. While individual state results are statistically representative of payday advance customers within their respective states, cumulative results do not present a nationally representative sample. They do, however, provide an overall view of the responses of 2,600 customers in the six states and facilitate comparisons between state results and those in the national Georgetown study.
PricewaterhouseCoopers — “The Payday Advance Industry: 1999 Company Survey Findings” and “Fees and APRs Associated with Payday Advances and Other Sources of Low-Balance Short-Term Credit”
The company survey findings attest to the large size and rapid growth of the payday advance business. In one year the industry grew:
- 42% in store locations and 104% in employee payroll
- 71% in number of customers and 79% in number of advances PricewaterhouseCoopers also examined the controversial interest rates associated with payday advance and found that:
- “Payday advances are competitive when compared to other means of obtaining small amounts of short-term credit. Indeed, payday advances are often substantially cheaper than alternative sources of credit, especially when allowance is made for the value of maintaining a good credit rating.”
- “Fixed costs associated with administering loans add little to the APR of large long-term loans, but can easily push the APR on small short-term loans high into the triple digits. Hence, if loans of all sizes and durations are to yield a reasonable profit, the APR associated with a large long-term loan is much lower than the APR associated with a small short-term loan like a payday advance.”
Source:
CFSA (COMMUNITY FINANCIAL SERVICES ASSOCIATION OF AMERICA)
