A New Perspective on the Debate about the Payday Lending Industry

Other than the estimated 12 million people who take out payday loans each year, just about everyone else despises these types of loans. Those who have taken up arms against payday lenders include consumer advocate groups, clergy members, writers, professors and even the President of the United States. Is it really right for all of these people to hate the payday lending industry, though? Many of the aspects of payday loans that people seem to vilify the most – ongoing debt cycles, allegedly targeting low income people and minorities – don’t really prove to be true when one takes an honest look at the short term lending industry. This is not to say that the industry is perfect, by any stretch of the imagination. However, it is in everyone’s best interest to learn the truth and then to make a judgement call from there.

Let’s take a look at a few aspects of short term loans and see if it is really justifiable for anyone to outright hate the payday lending industry in this country.

Payday Loan Fees

payday-onlineWhen people write scathing articles about payday loans, they often focus on the fees that the lending companies charge. At many payday lending locations, the lenders charge about $15 dollars for every $100 that is borrowed. Those types of fees would be alarming if they were attached to a mortgage or a high dollar loan. But considering that the majority of borrowers understand these rates for what they are – flat rate fees, and not yearly percentage rate fees – one should come to the conclusion that these rates are not all that high or difficult to repay.

And there are plenty of payday lending companies for people to choose from. It is not like there is a monopoly on this industry, and that borrowers are forced to pay these types of fees by a single lending company that is controlling all of the short term lending going on in the United States. There are thousands of local lending locations and hundreds of online lenders that people can choose to get loans from. Of course, some people are disturbed by the fact that there are so many payday lending locations. You don’t hear those same pundits getting upset about the number of McDonald’s locations, do you? Of course not. In a free market economy, businesses are free to develop and thrive IF the market for the businesses’ services or fees actually exist.

This leads to a very interesting point that many who oppose payday lending never seem to get: There is a great demand for short term loans all across the land. People who either don’t or won’t deal with mainstream banks and lenders, still need to borrow money. If these people – hard working adults who understand exactly how much they need to pay back within a short loan term – choose to do business with payday lender, who is anyone else to try to eliminate this industry; and industry that provides vital financial services to a large section of the population?

The fact of the matter is that there is no way to make everyone see eye-to-eye about the topic of the payday lending industry in the United States. However, the time has come for people to get a better understanding of this industry, and some of the reasons that people seem to loathe payday lending companies as a whole. It is only when we can get past the rhetoric and accusations that we ever get a better handle on any topic that might be considered controversial to others.