Opponents of payday loan reform argue that the payday loan industry benefits its customers by providing access to credit for customers who could not otherwise obtain it, and that it is paternalistic to deny consumers the opportunity to afford themselves of these benefits.
Payday loan customers, however, have a different view: Bring on the “paternalism.” A Pew Charitable Trust survey shows that 7 in 10 payday loan consumers support regulation to prevent industry abuses that result in typical borrowers paying about $520 in fees and interest annually on loan balances of about $375.
According to the survey, borrowers are particularly supportive of regulatory changes that would allow banks and credit unions to offer small installment loans to customers with poor credit—loans that would still be expensive compared to those offered borrowers with better credit, but would be six times less costly than payday loans and less likely to suck borrowers into the cycle of repeatedly taking out loans (and incurring the accompanying fees) to pay off loan balances within the two weeks required by most payday lenders.
Borrowers also would support the kind of reforms enacted in 2010 in Colorado, which required that lenders allow more time for repayment and limited fees. The result was that over half of Colorado's payday lenders shut their doors, but the remaining lenders doubled their number of customers while charging lower fees, saving consumers over $40 million a year. By a 9 to 1 margin, payday loan customers agreed that that outcome was a good thing.
