The Facts about Payday Lending

Payday loan growth has exploded over the last six years with outlets in the U.S. reaching to almost twice the number of McDonald’s locations. Get a quick glance of the payday lending industry.


If you ask a payday loan employee about the service its company provides, the answer is: “A viable alternative for unexpected financial emergencies.” Although a credit union professional might call payday lending legal loan sharking, a payday loan customer offers a different answer: A payday loan is a fast, convenient and very expensive answer to a need.

Payday Lending - At a Glance

  • The payday loan industry's loan volume has more than doubled over the last six years and grosses $40 billion per year
  • Payday loan outlet locations exceed 22,000
  • American families pay $4.2 billion per year in excessive payday loan fees
  • 91% of payday revenue comes from borrowers with five or more loan transactions per year
  • The typical payday borrower pays back $793 for a $325 loan

What Is a Typical Payday Loan?
The typical payday loan amount is $300 per two-week period. An average fee of $15 for each $100 is charged, resulting in a 390% APR. The fees can exceed 800% APR depending on the number of times the customer renews the loan for a larger fee.

Payday loan growth has exploded over the last six years, outlets in the U. S. almost twice the number of McDonald’s locations. Although a payday loan is structured as a one-time alternative for an emergency, its business model is dependent upon “loan flipping” or rollovers. This is a process by which payday borrowers renew their short-term loan for a larger fee because they are unable to pay the original fee on the due date. Loan flipping can result in APRs ranging from 300% to over 800%. Research shows that only 1% of payday borrowers take out one loan per year and pay it off on the original due date, which is its intended purpose.

Who Is the Payday Loan Customer?

  • Average income: $30-45,000
  • Average age: 34
  • Over 30% own a home
  • Average FICO: 560
  • Average Loan: $300
  • Number of loans per year: 4

Despite legislative reform efforts and controversial debates about lending abuse, payday lending continues to grow at a solid pace. It is fulfilling a need for many U.S. consumers, including credit union members. So credit unions across the nation are increasingly offering products that provide member-friendly alternatives. Join us for the upcoming webinar, Meeting Members' Short-Term Loan Needs: Alternatives to Payday Lending, and hear from credit unions who are offering short-term loan programs.

Sources: Center for Responsible Lending, November 30, 2006, “Financial Quicksand: Payday Lending Sinks Borrowers In Debt With $4.2 Billion In Predatory Fees Every Year”, Mister Money Holding, Inc., 2005




June 18, 2007


  • This is a much more complicated matter than most give it credit. Although Mary and I differ on some of the numbers, the end result is the same. Lack of awareness pushes many well intended customers (both CU Members and non) to pull into the parking lot of a Payday Loan Store rather than a Credit Union. While I have reams and reams of data on this subject, for me-- it all boils down to the basics. If we start with the fact that only 1 in 8 Americans balance their checkbook, (CNN/Money web site, 10/28/04), that’s not all that encouraging, for our country or our credit unions. I urge all the readers of this column to not try and access blame, but rather look outside your window at the cars in the parking lot. Count eight cars and the last one is the least likely to be a payday loan customer, and if they are a member they are generally golden. It’s that other multiple of seven that you must consider, as that lot contains a mixture of members, non-members, employees, building staff members. Ask yourself, How can I positively affect at least two more cars (people)? Think about your field of membership (composition, percentage rate of payroll direct deposit , credit utilization statistics). Chances are, if your credit union is like many others at least 30% of your members are using a Payday Loan Provider, and that includes your employees. There are successful ways to work through this problem, and I know about them firsthand. But I have found more often than not, most of the time you needn’t go past the parking lot to see how big the opportunity to positively affect someone''s life is. Oh, and one more thing...before you write off the above statement as ‘Maybe in someone else’s Credit Union’, remember the analogy: “almost twice the number of McDonald’s locations”.
    Frank McBride
  • Thanks for shedding light on this important issue. This is an excellent opportunity for credit unions to differentiate themselves from banks (although it''s still an uphill battle considering how many CUs are using similarly predatory programs, such as ODP). Hopefully this will get some attention with CU CEOs and we can all remember that we are here for the good of the member.
  • Mary, great information about the providers and users of payday loans! So I have to ask, why aren’t credit unions attacking this predatory lending practice as part of a national initiative? By attacking, I mean calling out how the consumer is getting screwed over by payday lenders and providing them with a more affordable alternative that promotes increased financial wellness. Taking on such a collaborative effort fits within the tenets of the movement, would help many consumers and would start branding “credit union” for what it really can be. Please refrain from providing lame excuses about how it is impossible to rally and coordinate such a broad audience. It is achievable! Just my two cents from this vendor who believes and supports the tenets of the credit union movement.
    Chuck Van Court