Who Are the Borrowers?

Typically, payday customers have cash flow difficulties and few, if any, lower-cost borrowing alternatives. Payday customers tend to be frequent users of payday advances, often choosing either to “roll over” their credits or to obtain additional subsequent extensions of credit (See Chart 2). This data indicates that the cash flow difficulties experienced by many payday customers are a long-term credit characteristic as opposed to a short-term temporary hardship.

A study by the Credit Research Center at Georgetown University’s McDonough School of Business indicates that payday customers often rely on payday loans because they have either been turned down for other forms of credit or offered less credit than the amount for which they had applied. The study also indicates that payday advance customers frequently have other characteristics associated with credit problems or limited credit availability, including borrowing from a pawnshop in the past five years, filing for bankruptcy in the past five years, or making payments 60 or more days late on a mortgage or consumer debt in the last year.1 As a result of these characteristics, payday lending is generally characterized as a form of subprime lending.

source: fdic.gov

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