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NY Fed Discusses Why Payday Loan Industry Is Vital

So many groups and individuals are coming out in opposition of payday loans. Many, in fact, are pushing for state or federal regulations that severely curb how much and how often a loan can be taken out by a consumer. The Federal Reserve Bank of New York recently offered their insight on payday loans and why putting an end to these loans is not the best move.

What the Federal Reserve Bank Said

One of the biggest points the NY Fed discussed was the notion that payday loans hurt the borrowers. Evidence points to a 50/50 mix. In Utah, borrowers filled out a survey and stated they were totally satisfied with their experience and would do it again. Research found that 6 out of 10 borrowers could state when they would be debt-free, and that only 2 out of 10 borrowers ended up rolling over their loans into a new payday loan. With this research, it seems that the savvy borrowers outnumber those who get in over their heads.

Are the Fees That Much Higher Compared to Late Fees?

There’s also been discussion regarding the interest charged with a payday loan versus the fees paid if you bounce a check or make a late payment. According to Bankrate, the average fee for one bounced check in 2014 is $30.47. Credit card late fees are capped at $25. Service providers often charge a late fee and a reconnection fee. These fees may be more than the cost to borrow a few hundred from a payday lender.

The Federal Reserve Bank of New York feels more research should be completed before any plans are made. There is the suggestion that more competition would drive rates lower. If borrowers also understood the repayment terms and realized the increased fees and interest involved when rolling over a loan, it might bring about change. That’s one of the key things the NY Fed is asking when it comes to the roll over loans – are borrowers simply too hopeful that their luck may change?

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