VIEWPOINTS: Increasing America’s Access to Quality Credit Is Necessary

Two recent reports underscore the importance of protecting and growing Americans’ access to quality, transparent, beneficial consumer credit options like traditional installment loans as opposed to potentially predatory credit schemes like payday, title, and cash advance loans.

This month, as part of its series of reports on economic opportunity in America, PBS examined how payday lenders target the poor and underbanked. These consumers are corralled into endless cycles of debt by taking out new loans to pay old ones – what the industry calls “flipping.”   They also typically have damaged credit and are underbanked – meaning their access to traditional forms of credit such as a checking accounts or bank loans is limited.

But the poor and underbanked are not the only Americans the payday industry preys upon.  Another report details the findings of a new study by PwC and George Washington University showing how increasing numbers of educated, socially-mobile and economically active millennials are being lured by the payday lending industry.

We don’t necessarily think of millennials as a group that would use the payday lending product. Yet, the report, “Millennials and financial literacy—the struggle with personal finance” found that millennials are heavy users of payday loans and pawnshops. In the past five years, 42 percent of millennials have used a service such as payday, tax refund advances or pawnshops. At least 50 percent of those who used these services had a high school education while 28 percent of them had a college degree. Millennials also have the lowest financial knowledge of any age group across the United States. Only 24 percent demonstrated basic financial knowledge and only 8 percent demonstrated high financial literacy.

What is clear from both the PBS and PwC reports is that Americans - regardless of their access to traditional banking options, credit score, or age - must be better informed about and continue to have access to high quality credit options, like traditional installment loans.

Regulatory and policy decisions should ensure that access to financial services that are reasonably priced, transparent and predictably structured is expanded across the country. Traditional installment loans provide consumers with loans that have clear repayment schedules, transparent interest rates and a simple origination process. And because repayment of these loans is reported to credit rating agencies, they can help borrowers rebuild or improve their credit over time.  Most importantly, traditional installment loans keep borrowers out of a cycle of debt.

Anyone who is seeking a source of credit should do their homework before signing on the dotted line. Whether a millennial or a baby boomer, underbanked or not, American consumers must be made aware that better options are available than the get-cash-quick, irresponsible lending schemes that are ubiquitous across the United States today.

The American Financial Services Association (AFSA) will do it’s very best to ensure that consumers are well-informed about the safe, responsible credit options available to them, like traditional installment loans. Moreover, AFSA will ensure that those credit options remain available when the American consumer needs them most.

VIEWPOINTS is a new feature of AFSA’s Newsbriefs that will appear periodically. Member companies are encouraged to submit articles for VIEWPOINTS.