What If Payday Loans Go Away?

Credit Union Times
November 11, 2009
Morrison, David

There are concerns about what would happen if Congress passes legislation establishing a Consumer Financial Protection Agency and limits or bans are placed on payday lending, as some consumers will continue to need access to short-term loans in emergency financial situations. With credit unions in 34 states taking part in the National Credit Union Foundation's REAL Solutions program, which offers payday loan alternatives, many observers do not foresee a crisis. A July report from the Center for Responsible Lending (CRL), titled "Phantom Demand: Payday Lenders Create Their Own Demand With Loan Terms That Generate Rapid Re-Borrowing," indicates that credit union loans or credit union programs that enable borrowers to save money could replace payday loans. Leslie Parrish, senior researcher at CRL, says, "Our report, 'Phantom Demand,' shows that it's very common for payday borrowers to take out their next payday loan on the very first day on which state regulations allow. Rather than serving as a bridge to get a borrower past a financial emergency to their next payday, the data clearly show payday loans work more like a shovel into deeper debt."

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