Reflecting on Advance America’s Optimism

Advance America CEO Patrick O’Shaughnessy tried to link his payday loans with recent research about cash constraints among many households. In an earnings call with investors on July 29th, he said:

“Our customers virtually all of them have a banking relationship, choose from a variety of credit options offered by any number of financial services providers. Ultimately, their decisions are based on value, service, reliability and convenience. They turn to Advance Americabecause ourservice does suit their needs.

As one customer in the You Might Be Surprised campaign told us, the reality of it is that you are not always going to have what you need. And so sometimes as working adult, you know that you have a responsibility to provide for your family. And if it requires you needing to get that help, then that’s an alternative sometimes you have to take. You don’t always want to ask your family to borrow money, you don’t always want to go to a friend, you ultimately want to have a second option.

A recent report from the National Bureau of Economic Research validated this customer’s situation. This report found that nearly half of American survey, said they could not come up with $2000 from any source over the course of 30 days if faced with an unexpected expense, such as a car repair or medical bill.

These findings were not unique to low income populations, roughly 38% of households with an annual income of over $100,000, said they would not be able to cope with such an expense.

When our customers find themselves with a financial need as those described in the NBER report whether it is anunpaid bill, an unexpected car repair, medical emergency, or if they are simply looking for a way to avoid late fees, they make fully informed and deliberate decisions when they choose our service.”

O’Shaugnessy is right about the need, but he isn’t right about how people respond. Maybe he is just overstating his hand. Some people do opt to get a payday loan when they have an emergency. But plenty of others don’t and for the most part, neither a payday loan nor a refund anticipation loan comes anywhere close to being a first choice. A better way to think of it is that payday loans are one of the refuges of people that are completely without options.

Payday loans are convenient but they create problems before too long. Payday lenders make a lot of money when they can get customers to roll over their loans from one period to the next. That happens all too often. In fact, Advance America is closing its Washington stores, a move that comes after recent legislation passed in the state that thwarted these kind of accounts. Even though it was “balanced” legislation designed to allow the industry to remain in the state, AEA is leaving.

O’Shaughessy might say he is filling a need. Unfortunately, he is filling a need for the desperate and vulnerable. Moreover, there is no real discussion about how well his customers are able to move on after their short-term need has been met. It is an unfortunate reality that many people have to renew their loan after two weeks. For Advance, that is also problematic. At some point their services extinguish the resources of their customers.