The much-maligned payday lending industry is not what you may have been led to believe. Unfortunately, what many in the media won't recognize, and what too many regulators may also overlook, is the distinct difference between responsible lenders who offer a safe, reliable loan product, and unscrupulous lenders who commit fraudulent acts and scam consumers.
A payday loan itself is a viable credit product that plays an important role in helping those who experience cash shortfalls cover immediate expenses. But unscrupulous lenders who deceive borrowers and uphold unlawful business practices have given the entire industry a black eye. Because of this, licensed, regulated lenders are often criticized, forced to defend their product and those who choose to use it.
You may be surprised to learn that more than 40% of households in the U.S. have used some form of alternative financial services, and these services can vary from payday and installment loans to check cashing and money transfers. Importantly, these products help millions of Americans meet their financial needs whether because they lack access to traditional banking services or simply to address a short-term financial hardship. Whatever the reason, "alternative" financial services are becoming increasingly mainstream.
Those who work in relatively well-paid professions can celebrate having several credit options, but many consumers can't obtain traditional forms of credit and are unable to rely on credit cards for unexpected medical bills or when their cars need repair. Providing a variety of alternatives is necessary so that we can support the credit needs of all consumers. If we empower consumers to make informed decisions about the financial products they want and need, they can and will do the math and pick the option that is best for their specific situation.
My organization, the Community Financial Services Association, represents storefront payday lenders. We have been at the forefront of research into consumer use of payday loans, and our members have decades of data that attests to the value of these loans and their borrowers' positive experiences.
In addition, every member of our association adheres to a mandatory set of Best Practices, which includes at no charge an extended payment plan for borrowers who want more time to repay their loan. We uphold the highest standards in payday lending and believe these should serve as a regulatory blueprint for the entire industry.
CFSA and its members are constantly evolving and taking proactive steps to better serve consumers. And while doing so, we work with federal and state regulators and lawmakers to develop regulations that maintain a variety of credit options and adequate protection for consumers.
It's time to recognize the other side of payday lending the side that makes credit work for the consumer, not against them.
Dennis Shaul is the chief executive officer of the Community Financial Services Association of America, which represents storefront payday lenders. He previously served as a senior advisor to former House Representative Barney Frank.