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Payday loan survey raises questions: What does 'middle-income' mean?

March 17, 2006 - Tucson, Arizona

Arizonans with payday loans tend to be younger than the state's average resident, "middle-income" and educated, according to a survey by the payday-loan industry.

But a comparison with Arizona census figures shows payday borrowers tend to fall into lower income brackets, and payday-lending critics questioned the survey's findings.

The survey results involved 600 payday-loan customers in Arizona who were contacted by phone in December as part of research by The Community Financial Services Association of America, which represents the payday loan industry.

Since Arizona legalized payday lending in 2000, the industry has found itself criticized as a form of predatory lending that targets poor or uninformed customers. But little attempt has been made to research who actually uses payday loans.

According to the industry's reading of the survey, half of payday-loan customers are middle-income, which the industry defined as $25,000 to $50,000 in annual household income.

However, five out of six customers surveyed said they made less than $50,000. Compared with the average Arizonan, that suggests payday-loan customers are more likely to come from lower income brackets: In 2003, half of Arizona households made more than $41,000 a year, according to U.S. Census data.

A leading opponent of payday lending dismissed the survey's results, saying residents making $25,000 a year are not middle-income Arizonans, despite what the payday-loan industry insists.

The industry said the survey shows that "payday-advance customers in Arizona are generally middle-income and educated."

But the Tucson-based Southwest Center for Economic Integrity, which favors banning payday lending in Arizona, said the survey does nothing to alleviate its concerns about predatory payday lenders.

"What they desperately want is legitimacy, and that's what these phone surveys are about," said Kelly Griffith, deputy director for the center.

Griffith disagreed with the industry's assertion that almost half of Arizona's payday customers are "middle-income," which the survey defined as an annual household income of $25,000 to $50,000.

"I don't agree that a person making $25,000 a year is a middle-income consumer," she said.

Lee Miller, lobbyist for the state's payday lenders, said the survey shows customers understand costs and consequences when they apply for a payday loan.

"I think that an important point that the survey makes is that payday (lending) is almost the antithesis of a predatory loan," Miller said.

The survey said 89 percent of customers surveyed were "satisfied with their understanding of the terms and cost of their payday advance."

A payday-loan customer in Arizona can borrow up to $500 for two weeks, and pledge to repay the loan with his or her next paycheck. The maximum interest rate is 15 percent for two weeks, or $75 for a $500 loan.

Arizona customer demographics closely resemble those from other states, said Patricia Cirillo, president of the Ohio-based Cypress Research Group. Cirillo's company conducted the Arizona survey, and has surveyed customers in other states.

The North Carolina-based Center for Responsible Lending, which works to stop predatory lending, has criticized the payday-loan business for targeting minorities and members of the military. The Arizona survey did not ask about race, ethnicity or military service.

The Arizona survey also did not ask how often customers used payday loans. Cirillo said some national payday chains have estimated their average customer uses eight loans a year.

Several bills in the current session of the Arizona Legislature propose changes to laws on payday loans. Proposals include increasing protections for members of the military, and reducing how long a customer can roll over, or extend the duration of, a loan once the initial two weeks ends.

"The Legislature is once again going to have to confront the issue of whether it's necessary to protect people from themselves," Miller said. "There certainly is some small segment of the payday-loan customer base for whom, most of us would agree, payday is a bad choice."

The survey carried an overall margin of error of plus or minus 5 percentage points.

News Source

The Arizona Daily Star, Scott Simonson, Staff Writer

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