Urban Institude report recommends better disclosures and increased competition to protect consumers

WASHINGTON--A new report by the Urban Institute finds that if payday advances are eliminated they "could be replaced by alternatives that make
families even worse off."

In "Enabling Families to Weather Emergencies and Develop the Role of Assets," by Signe-Mary McKernan and Caroline Ratcliffe, the researchers find that low-income working families need access to small loans, such as payday advances, to help weather bad patches. 

Instead of regulating prices charged on small, short-term loans, the authors argue that increasing competition will drive prices down. They express concern that regulating prices "would make fewer small, short-term loans available" and suggest that prices can be driven down, not by setting rates, but by "regulating disclosures; requiring licensing, reporting, and examinations; and creating incentives for financial institutions to provide small loan services."  

"The Urban Institute understands that eliminating payday advances is not in the best interest of working families," said D. Lynn DeVault, president, Community Financial Services Association of America. "Its recommendations ensure that consumers would be aware of all of the fees associated with a credit product so they can compare their alternatives and make an educated decision based on what is best for them." 

Specific policy recommendations in the Urban Institute report:   

Disclosures. Regulate standard, clear, and timely disclosures of the total loan cost so consumers know their full obligation and can easily compare what various lenders charge for loans...Stating the fee as a dollar amount instead of or in addition to the annual percentage rate (APR) may be easier for consumers to understand on short-term loans.  

Longer-Term Products. Develop a longer-term loan product for habitual users-those who rely on short-term loans frequently or for long periods-is needed. Regulating disclosures and creating incentives for traditional financial institutions to provide small loans would create this product de facto. 

Highlights available at http://www.cfsa.net/FullDisclosures.html.
Full report available at http://www.urban.org/UploadedPDF/411734_enabling_families.pdf.

Contact: Steven Schlein or Lyndsey Medsker 202-296-0263

About the Community Financial Services Association of America
The Community Financial Services Association of America (CFSA) is the only national organization dedicated solely to promoting responsible regulation of the payday advance industry and consumer protections through CFSA's Best Practices. As such, we are committed to working with policymakers, consumer advocates and CFSA member companies to ensure that the payday advance is a safe and viable credit option for consumers.

Payday loans can really be a life saver when you need cash and you need it right away for something important. It is the quick cash you need now for something that can't be placed on the back burner until you find a way to pay for it on your own.

There are many reasons a person might need a cash advance and it is reassuring to know they are there to help you when help is exactly what you need. A friend of mine recently started his own business. While it is still in its beginning stages, it is on a very promising path and beginning to expand rather rapidly. What once was able to be operated out of a home office, is now beginning to bust a little at the seams and the need for an office space is no longer in the distant, but near future. With this added space, come added expenses as well.

While financially, they will be able to afford the rent and utilities of the new office building, money gets a little tight when the deposit gets factored in to the mix. By obtaining a payday loan, they are able to pay the deposit on the space without jeopardizing the need to be able to afford the new staff they will need to hire to assist in running an actual office space. By allowing a cash advance to pay the deposit for the new office, the business doesn't take a hit for a venture that promises growth and development of this business.

It will allow them to see more clients in a more professional manner not to mention the advertising perks, having a building with their company logo right out front for potential clients to see. Remember payday loans when you are looking for a little help building your business enterprise.

Whatever you want to call them they are a lifesaver as they can come in very handy at the right time. For one example, right now I am moving and need to get some help moving things so I will call a mover. At the new place, I will need to pay a deposit at the new place while hoping to get my old deposit back from my frugal landlord.

I also need to pay deposits on utilities and then hope to get it all turned on in time to not eat dinner a few times in the dark at the new place. Payday loans are essential for me to mate my emergency expenses against my non emergency regular income.

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Banks in the United States are poised to make $38.5 billion in customer overdraft fees this year during the worst economic climate since the great depression, the Financial Times said, citing research by Moebs Services. A large portion of the revenue is likely to come from the most financially stretched consumers, according to the paper. Speedy Cash is helping thousands of consumers in this economy manage their finances better and avoid the increased fees banks and credit card companies are charging. A simple cash advance or payday loan from Speedy Cash helps the average consumer save hundreds of dollars per ... Continue Reading