Cash advance industry deny that the poor and undereducated are their customers

The state of Arizona first legalized payday loan stores in 2000. Since then, the state has seen hundreds of cash advance lenders move into the state, particularly near military bases. Several cities have passed restrictions designed to stem the flow of stores into their area, and the state is taking a close look at how their citizens are affected by the high interest, short term loans.

A recent study conducted in the state by the Community Financial Services Association of America, a trade group that represents the industry, has put forth some statistics that many opponents within the state find hard to swallow.

The industry has long been criticized for locating their stores in areas that are predominantly poor, undereducated or largely inhabited by military personnel. Opponents point out that those who are well off or educated would have no use for loans that have interest rates that can reach 1000% per year when other options, such as bank loans, or credit card loans are available. Most customers of payday loan stores use them because they have no other short term options for obtaining cash. 

The industry disagrees. The recent study suggests that customers in Arizona do not fit the traditional mold of cash advance customers. In fact, the study says that the average customer earns in the “middle income” range and is well educated. Studies by other groups within the state suggest otherwise, noting that the study classified a salary of $25,000 as “middle income.” There are few places where a salary in that range would qualify as middle income, but there are plenty of places where such a salary would qualify as poor.

The study did point out that nearly 90% of customers were satisfied with their understanding of their lending experience. That may be true, but then again, most state laws require that the terms of the loan be disclosed to the borrower in writing. Many states additionally require that the interest rates be posted on the wall of the store, in plain view of customers. Given that, it’s hard to see how anyone could claim not to be well informed.

But knowing that you are borrowing money at 400% doesn’t mean that doing so is a smart thing to do. The state legislature is continuing to keep an eye on the industry, and several changes in law have been proposed on a statewide basis, particularly in terms of protecting the military from predatory lending. A disproportionate number of stores tend to be located in areas that have military bases. In a time of war, taking advantage of our poorly paid soldiers does not sit well with elected officials.

The biggest issue with such lending and state law involves the question of whether or not the states are obligated to protect consumers from themselves. North Carolina recently decided that the state had exactly that obligation when they shut down the cash advance industry within the state. 

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