The Wall Street Journal-20080130-Why Many People Use Payday Loan Services Instead of Using Banks

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Why Many People Use Payday Loan Services Instead of Using Banks

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The initiative outlined in the column by President Clinton and Gov. Arnold Schwarzenegger ("Beyond Payday Loans," op-ed, Jan. 24) highlights the importance of expanding, not limiting, access to credit. It also underscores the need for financial literacy and for consumers to have more choices among financial products. We have spent a decade advocating for these ideals and have put millions of dollars behind community-based financial literacy programs.

For our part, the payday advance industry provided $45 billion in credit last year to consumers who have checking accounts and chose our service based on their assessment that it provided a better value than alternatives such as bounced check fees and overdraft protection. We believe that increasing and protecting choices are the best way to ensure that the needs of consumers are met.

Darrin Andersen

President

Community Financial Services Association

Alexandria, Va.

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Are you kidding? There are reasons people use the check-cashing services as opposed to banks.

You need a permanent address for a bank account so you can get your statement. You need a driver's license or ID card for identification. You need to maintain a minimum account balance to get the "free" checking, otherwise the fees add up.

My guess is that a fair number of people who use payday loan services and check-cashing services may not have these things that Mr. Clinton and Mr. Schwarzenegger take for granted. If you are transient, illegal or sporadically unemployed, the above are alien to you. These people are not a large disenfranchised group being fleeced by evil capitalists. They are willing participants in a financial transaction, and are more conscious of the intricacies of that than of "free checking."

These payday loan services provide a clear alternative to banking for a group of people. If they didn't they would not be so successful. We also have not seen how these payday loan businesses will do in an economic downturn. I would hope they are pricing their product appropriately to compensate for the risk of clients who fail to pay back loans. My guess is that the payday loan people have priced their risk better than the banking people over the last three years.

Dan Taifer

Walnut Creek, Calif.

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The authors want more Americans to "join the financial mainstream." That's the same mainstream that delays deposits and transactions while they "process" your check. It's the same mainstream that sends out millions of unsolicited credit card pre-approvals and grants credit to people who have none.

It's the same mainstream that got us into the savings and loan mess and worked for their own questionable goals in making home loans that couldn't possibly be paid off.

It's the same mainstream that arbitrarily "adjusts" interest rates and charges usurious fees for overdrafts and late payments. Messrs. Clinton and Schwarzenegger are right about exorbitant fees to cash checks, but mainstream banks are just as slick and just as greedy.

J.J. Stives

Fort Pierce, Fla.

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What conservatives (the banking industry) and progressives (Barney Frank, etc.) already came together on was the successful effort to prevent Wal-Mart from providing exactly the type of banking services to low-income Americans that Mr. Clinton and Mr. Schwarzenegger are now advocating.

Kent J. Lyon

College Station, Texas

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For more than 70 years, the Financial Service Centers (FSC) industry, now numbering more than 13,000 locations, has been providing millions of low- and moderate-income consumers with the financial services they need -- check cashing, bill payments, money remittances, prepaid debit and phone cards, and small dollar, short-term loans -- many of which are not readily available at banks. We even have expanded those financial opportunities with products that are virtual bank accounts, including savings.

The Financial Service Centers of America (FiSCA), the national trade association representing the FSC industry, has introduced three key programs.

National Savings Program: This program offers a no-fee, interest- bearing, federally-insured savings account linked to a prepaid debit card.

Credit Building Initiative: This enables consumers and small businesses to build a credit file and score, based on their history of rent, utility, phone, and other recurring bill payments that demonstrate creditworthiness, which helps secure access to credit.

Financial Education Program: FiSCA's financial education program will directly target low- and moderate-income consumers, educating them on the products and services available to them.

Hank Shyne

Executive Director

FiSCA

Hackensack, N.J.