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Payday Loans: Are Borrowers Feckless or Savvy?

[Jan 30, 2009.]



Some campaigners characterize those who use payday loans as feckless, and even a little childlike. They often argue that the industry needs draconian regulation to protect borrowers from themselves.


But this reporter has seen unpublished new research from Borrow Smart Alabama that suggests that payday loan users may be a lot savvier than that.

Borrow Smart Alabama is a trade body, which represents more than 400 payday loan outlets in that state. The research was conducted in the middle of last month, and covered November, and the first half of December. All members were polled, but the following data reflect the answers given only by those--more than 50 percent--that responded.


Most people would expect payday lending to increase dramatically during the run up to Christmas. It is probably the most expensive time of year, and traditionally consumers stretch themselves financially over that period. Indeed, 92 percent of respondents to the poll said that their volume of business typically goes up during December.

However, 2008 was different. Forty-six percent of Alabama payday lenders who responded reported that their business had actually decreased during both November, and the first half of December, compared with the same period last year. For eight percent, the decrease had been dramatic.

A mystery

These figures seem counterintuitive, especially during exceptionally difficult economic times. Surely, irresponsible borrowers should have been queuing up at payday loan outlets to pad out their thinner wage packets, and to make up for the unavailability of other forms of credit.

A theory

Is the most likely explanation for this mystery that most payday loan borrowers are not irresponsible? Is it possible that they looked at the economy, were concerned about their future prospects, and made a rational, adult decision to limit their credit by doing without over the holidays?

Of course, Borrow Smart Alabama is a trade body with an agenda. And the research was based on a limited sample in just one state. But it does pose some interesting questions on which those who seek to infantilize payday loan borrowers should ponder.


About Author:

Peter Andrew has been writing about -- and for -- business for more than two decades. For the last couple of years, he has found himself increasingly specializing in the U.S. financial sector.

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