Monday, August 20, 2012
Nick Bourke, Project Director, Pew Charitable Trust's Safe Small-Dollar Loans Research Project
Miro Copic, SDSU School of Business Administration
Who Borrows, Where They Borrow and Why
Internet Payday Lending Alert
The California Department of Corporations has issued a warning about a new trend in payday lending. The department says payday lenders are moving from storefronts to the Internet, which means they can attempt to skip licensing with the Department of Corporations and evade state laws and regulations designed to protect consumers.
Pew Charitable Trusts did a study recently that found payday loans are less likely to be used to cover emergency costs.
According to the study, 69 percent of payday loan borrowers used the loan to cover a recurring expense, such as utilities, credit card bills, rent or mortgage payments, or food. Only 16 percent used the loan to cover an unexpected expense, such as a car repair or emergency medical expense.
Nick Bourke, the project director of Pew Charitable Trust's Safe Small-Dollar Loans Research Project, said those findings dispute the stereotype of loans' uses.
"Payday loans are usually packaged as products that people need for emergencies and for short periods of time, the reality is quite different," he said.
Miro Copic, a professor in San Diego State University's School of Business Administration, said payday lenders target the underemployed and unemployed, who are more likely to be optimistic and hope the loan will be a bridge to a future employment opportunity.
Copic said the loans also do not help the economy because people tend to spend the money on necessities, not bigger items like clothes, back-to-school items or appliances.
The study also found that 12 percent of people who are disabled have used payday loans. Copic said there is nothing illegal about borrowing against government disability checks, and that people sometimes end up taking out loans because disability payments are not enough to live on.
According to Center for Responsible Lending, California payday borrowers lose more than $450 million a year just to pay the fees on payday loans, which have interest rates of 459 percent.
Claire Trageser contributed to this report.