Are payday lending markets competitive Despite their claims credit unions seem unable to offer competitive payday loans

Are payday lending markets competitive? Despite their claims, credit unions seem unable to offer competitive payday loans. The rapid and widespread growth of the payday loan A payday loan or paycheck advance is a small, short-term loan that is intended to cover a borrower's expenses until his or her next payday. Typical loans are between $100 and $1500, on a two-week term and have interest rates in the range of 390 percent to 900 percent market has  sparked considerable controversy, in part regarding the "high"  prices charged on payday loans. Are such accusations warranted? Payday lenders argue that their loans do not yield excess profits once one  accounts for the full economic costs of the business. Banks and credit unions, however, argue that prevailing fees more than cover costs;  credit unions in particular argue that they can effectively serve the  same borrowers at lower prices. This article presents several new pieces of evidence addressing the question. Can credit unions provide functionally identical payday loans at a lower price, or offer a different product with a  price/characteristic mix that payday borrowers prefer? Considering both prices and non-price characteristics is critical, because even  lower-priced credit union payday loans cannot compete with standard  payday loans if they have qualitative characteristics that potential  borrowers find extremely unattractive, or if they screen potential  borrowers out of the market through tighter credit approval  requirements. The most direct evidence is the most telling in this case: very few credit unions currently offer payday loans. Fewer than 6 percent of credit unions offered payday loans as of 2009, and credit unions  probably comprise less than 2 percent of the national payday loan  market. This "market test" shows that credit unions find entering the payday loan market unattractive. With few regulatory obstacles to offering payday loans, it seems that credit unions cannot  compete with a substantively similar product at lower prices. Those few credit unions that do offer a payday advance product often have total fee and interest charges that are quite close to or  even higher than standard payday loan fees. Credit union payday loans also have tighter credit requirements, which generate much lower default  rates by rationing rationing, allotment of scarce supplies, usually by governmental decree, to provide equitable distribution. It may be employed also to conserve economic resources and to reinforce price and production controls. riskier borrowers out of the market. The upshot is that risk-adjusted prices on credit union payday loans might be no lower  than those on standard payday loans. A final point--one that is too often ignored in policy discussions-is that borrowers find the non-price characteristics of  standard payday loans superior to the non-price features of credit union  payday loans. Credit unions have locations and business hours BUSINESS HOURS. The time of the day during which business is transacted. In respect to the time of presentment and demand of bills and notes, business hours generally range through the whole day down to the hours of rest in the evening, except when the paper is payable it a bank or by a that  consumers find less convenient than those of commercial payday lenders. Application times are longer at credit unions. And default on a credit union payday loan may harm one's credit score, while default on a  standard payday loan does not harm one's credit score. Current payday loan customers view these restrictions negatively, expressing a  preference for a less restrictive but higherpriced payday loan over a  more restrictive and lower-priced payday loan. Borrowers also dislike the lack of privacy conferred con·fer    v. con·ferred, con·fer·ring, con·fers   v.tr. 1. To bestow an honor, for example: conferred a medal on the hero; conferred an honorary degree on her. because credit union payday loans do not "keep my payday borrowing separate from my other banking." In short, the claim that other financial institutions can serve the market at lower prices does not seem justified. At lower rates and fees, credit unions are either deterred outright from offering payday loans or  are only willing to offer a type of loan that potential borrowers find  unappealing. [ILLUSTRATION OMITTED]    Payday Lending: A Primer     A payday loan is a short-term advance against a future paycheck. A payday lender generally advances a customer $100-$500 per loan. In return, the borrower leaves a postdated check postdated check n. a check delivered now with a written date in the future, so that it cannot be cashed until that date. The danger to the recipient is that such a check is legally only a promissory note due at the later date, and if the account is closed or short with the lender for the  loan principal plus fees, and the lender deposits the check after two  weeks. The loan fee, which one can view Find out more on  instant payday loan