A Comparative Analysis of Payday Loan Customers

Abstract

One of the most rapidly growing and controversial forms of consumer lending to recently emerge in the marketplace has been payday advances. This form of credit allows the borrower to obtain a small amount of cash for a short period of time. Claims of predatory lending often arise due to the high annual percentage rates that result from the fees for borrowing small amounts of money for 2 wk or less. By analyzing the data collected in a national survey of payday customers, this research allows policymakers to better understand what type of consumer borrows from payday lenders, for what purpose, and what the true benefits and costs are. The results confirm a strong demand for payday loans that satisfy a real financial need within a certain segment of the population.

JEL Classification: D12, D18, G20