Reacting to a nationwide effort to pass restrictions on payday loans, the trade association for the lenders released the results of its own survey Wednesday, which found that a majority of borrowers don’t want government regulation.
“There has been renewed interest on regulation on both state and local levels,” said Dennis Shaul, the chief executive officer of Community Financial Services Association of America, a trade association based in the Virginia suburbs of Washington, D.C.
“As we work with regulators over the coming year, we hope to have productive discussions on regulation that provide common sense protections while preserving credit options,” Shaul said.
The premise behind the loans is simple. In need of a short-term loan, borrowers get a small amount of money, $50 to $350, and repay it in a couple weeks on the next payday.
However, critics of the business practice complain the loans appeal to people already struggling who soon drown in fees and additional loans. More often than not the loans are not repaid promptly, thereby requiring another loan with increased fees, critics say.
Together Baton Rouge says Louisiana families paid $196,394,987 in fees and interest on payday loans in 2011 and 57,000 Louisiana households take out payday loans each year.
The average Louisiana customer takes out eight additional loans to pay the one loan, according to the Louisiana Budget Project, which estimated the average customer in this state pays $270 fees for a $100 loan, he said.
AARP Louisiana is preparing legislation that would limit the long-term interest rates for “payday” loans. AARP polled 600 Louisiana residents of voting age and found that 60 percent back the idea of restricting payday loans.
The general session of the Louisiana Legislature begins March 10.
In the Community Financial Services Association poll, about 95 percent of the 1,004 customers who had recently taken out a two-week payday loan of less than $700, said they believe it should be their choice whether or not to use payday lending and not the government’s choice. The estimated sampling error rate is plus or minus 3 percent.
“However, we also found that one in five, a minority but still a significant number of people, say the government should impose tighter restrictions on payday loans,” said Humphrey Taylor, Chairman of the Harris Poll, a service of Harris Interactive Inc.
Three in five favored the government setting limits on the dollar amount that customers could borrow at one time, Taylor said. Another 41 percent feel the government should set restrictions on the number of times a customer can renew or extend a loan.
The survey is the most comprehensive examination of payday loan borrowers’ experiences, Shaul said.
The poll found that 97 percent of borrowers agreed that their payday lender clearly explained the terms of the loan to them and 68 percent preferred a payday loan over incurring a late fee or an overdraft fee from their bank when faced with a short-term financial crisis and unable to pay a bill.
“The voice of the customer rings loud and clear, and the survey shows they not only understand the terms of their loans, they also value having this credit option and use it responsibly,” Shaul said.