Last week, PBS NewsHour ran a segment titled “The Surprising Logic Behind the Use of Check Cashers and Payday Loans.” The program explored why, for some lower-income individuals, it makes more sense to cash checks or take out high interest loans than to go the more traditional route, like opening a bank account.
University of Pennsylvania Professor Lisa Servon asked herself why “people would be using a service like this in increasing numbers if it was so bad for them.” To find out, she began researching the non-bank financial services industry and even worked at a payday lender and check cashing store before writing her book, “The Unbanking of America.” According to Servon, it comes down to quick access to funds and services that they can’t get elsewhere.
To watch the full eight-minute segment, click here.
Yesterday, PYMNTS.com followed up with a similar article that touched on Servon’s research and the role payday lending plays in the market. Here are a couple excerpts:
So everyone hates payday lending and views check cashing as inherently suspicious and predatory.
Well, almost everyone. According to the New York Federal Reserve Bank, there is one rather notable minority of consumers who rather like these products — the people who actually use them. For that group of 10 to 12 million consumers each year, payday loans are rather popular.
Even much-maligned payday lenders are filling needs for customers that are often non-optional. Consumers don’t buy luxury items with payday loans — they pay bills.
And while the costs are high, and there is a genuine concern that access to more expensive credit is worse than access to no credit at all, Servon noted that for financial marginal consumers, access to funds are often expensive no matter where one turns, even if it is more traditional. The banks’ costs just may be less obvious.
You can read the full article here.