More Evidence That Americans Want Payday Loans Regulated, and In Certain Ways

Payday loans are short-term loans that generally must be paid on the borrower’s next payday–typically, two weeks. These loans carry a fee of around $15 for every $100, payable at the end of those two weeks. But most borrowers are unable to pay within two weeks. Instead, they roll the loans over, sometimes multiple times, making these “small dollar loans” much more expensive, and APR a better gauge of actual borrowing cost. According to the Consumer Financial Protection Bureau (CFPB), the typical two-week payday loan carries an APR of 400%. In response to the inability of borrowers to pay such high interest rates, some states have regulated these types of law, and the CFPB has proposed rules to regulate payday and auto title loans. For instance, New Mexico’s governor recently signed a bill that outlaws small dollar loans with terms less than 120 days and caps interest rates on small dollar loans at 175%.

In light of the national attention that payday loans continue to receive, what does the American public think about them and various proposed reforms? Last week, Pew Charitable Trusts released the results of its recent survey of 1,205 American adults that aimed to assess public sentiment about proposed reforms. Highlights of the study include three key findings.

First, 70% of respondents indicated that they think payday loans should be more regulated. Second, in determining whether a loan is effective, respondents focused on the pricing of the loan, rather than the process by which the loan was issued–that is, interest and fees versus whether the borrower’s credit report is pulled. Finally, third, 70% of respondents wanted to see banks offer small dollar loans to people with poor credit, so much so that 70% of respondents indicated they would view banks more favorably if they offered small dollar, lower-cost loans. And lower-cost does not mean loan. Lower-cost includes a $400 loan, due in three months, for a $60 fee.

This finding comports with respondents answer to another question about banks offering an alternative to payday loans. 75% of respondents indicated that it would be a “good thing” if banks offered small dollar loans with APRs higher than credit cards, but lower than current payday loans. Overall, this new survey’s findings should be kept in mind as states and the CFPB continue shaping payday loan regulations.

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