Iâ€™ve noticed something really distasteful when I read about payday loans in the media.Â Whenever the media or an opponent bashes payday lending, there is an implication made regarding the borrower.Â It isnâ€™t always obvious, but if you read between the lines, the subtext is that borrowers are stupid to be using this product.
This goes back to my discussion on price.Â Opponents start with a false premise, namely that the loanâ€™s price is â€œtoo highâ€.Â As Iâ€™ve written, payday loans are neither the most nor the least expensive option, and the customer is the only person qualified to determine if the price is right for them.
Having false concluded that the price is too high, opponents make the further misinformed assumption that one must be stupid to be using the loan.
From that logical fallacy, they move to the next faulty conclusion: since they are stupid, they are â€œbeing taken advantage ofâ€.
I think itâ€™s rather snotty, and I would call it elitist, for opponents to look down on consumers like this.Â As Iâ€™ve written, American consumers are not stupid.Â They know how to do two things really well: shop for the best deal, and complain.Â No matter how unseemly or difficult their situation may be, a consumer goes to a payday lender because they have made the best and prudent decision for themselves.Â For a third party to catcall from the sidelines, and insist that the consumer does not know what they are doing, is ridiculous.Â They do not know the borrower.Â They do not know what line of thinking that customer has used.
I came across this article, thanks to it being linked in some other online publications, which describes how a consumer behaves (it applies to everything, not just payday loans).
The real price signal to which the borrower responds is the flat fee that is charged to hold the postdated check. If the value attached by the borrower to the immediate cash advance exceeds the value of the principle plus the fee one or two weeks hence, then the borrower will undertake the transaction, pure and simple.
This is a very simple and elegant explanation of how price works.Â Opponents make a faulty assumption from the get-go, that a customer is â€œtoo stupidâ€ to know they are making a bad choice.
Thatâ€™s wrong.Â Itâ€™s also elitist.