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Do Online cash advances Burden Them Unnecessarily? That is a widely held view, but the authors’ findings suggest that convenient, easy-to-use online cash advances have a negative financial impact on only “a small fraction” of LMI households. On average, LMI households (banked and unbanked) have been shown nationally to pay between $400 and $600 on online cash advances yearly, which only amounts to two to three percent of annual income. For the Detroit area, the median was much lower, ranging from $41 to $98 for various credit services. Time and distance costs for LMI households to use alternative financial services were observed to be somewhat more significant. In most cases this appeared to be the time and cost of transportation to get to brick-and-mortar online cash advance and checking cashing outlets. However, I would suggest that if more consumers were aware of online online cash advance services like those found atPersonalMoneyStore.com, time and transport costs would be greatly reduced or cut to nothing, so long as a home Internet connection is available. Conservative Spending LMI households necessarily displayed low level spending in the study. Mainstream financial service usage was low, as was alternative service usage (like online cash advances). Being banked and having access to direct deposit – both of which are generally necessary in order to receive online cash advances – are two areas in which LMI Detroit households surveyed were behind national averages. What this means, of course, is that widespread abuse of online cash advance products would be impossible, as the possessing both of the above criteria is generally required. Staving Off Food Shortages and Eviction These were two categories where use of online cash advances were reported among LMI households in Detroit, which would appear to indicate that such credit is relied upon in emergency situations (rather than in superfluous spending, as the media would have people believe). Access to more credit options (following a transition into the traditional financial services sector) would perhaps assist such consumers in dealing with financial issues, but the fact remains that most traditional banks simply do not have programs for which LMI households can qualify, whether it is because their credit rating is insufficient or the entry cost is too great. Online cash advances and Fees: a Minute Percentage of Annual Income While it is true that LMI households may curtail spending due to their relative lack of financial means, the observed debt load from online cash advances and similar products didn’t prove to be excessive when they were used. Some financial institutions are rushing to catch up with payday lenders by offering similar products, but since they draw so much of their operating income from more expensive services like overdraft protection, there is little incentive to face risk and greater loss potential that goes with payday lending. Savings is Important The savings factor is not included in the authors’ analysis, but they do mention that consumers who face credit restrictions and income shocks that threaten to destroy their budget could certainly benefit from such education. Sadly, such things as how to budget and maintain savings for a rainy day is still something that the American public school system tends to gloss over. Basic financial literacy is something everyone should be aware of, which is why a great deal of institutional reform is needed. To their credit, many online cash advance outlets and traditional banks offer information on financial education, but the ideal time to learn is during childhood. Why So Many Unbanked? Recall earlier that I mentioned that online cash advances aren’t terribly lucrative for banks, to the point that things like overdraft protection are more interesting for them. It is true that the costs of collecting small deposits are high in relation to potential earnings. The only way to make up for that on the institutional level is to charge a higher fee. Unfortunately, such fees even apply to maintaining bank accounts, particularly for LMI customers who banks might consider to be of greater risk. The fees make having a bank account less attractive to some of the more challenged LMI households. Costs for transactions, not maintaining a minimum balance and overdrafts are often excessive. And if a household has had difficulty maintaining a bank account in the past, systems like ChexSystems let banks know. It would appear that the traditional banking system itself is designed to oppose the entry of many LMI households. Is it Any Wonder that Online cash advances are Popular? They are popular, indeed. And the authors’ findings regarding online cash advance fees in relation to total annual income clearly indicate that they are not an excessive burden. There is a need that online cash advances fill. The aftermath for most borrowers is far from catastrophic. Only the slim catastrophically impacted minority make for juicy news, I suppose. Get your online cash advance now
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