What would happen if people only used payday lenders responsibly?

During my blogging "career", I've found myself defending the payday lending industry on more than one occasion. I don't do it because I think payday lenders are good for consumers but rather because there's a widely-held assumption that the industry is earning huge profits at the expense of consumers, which isn't the case. Looking at the financials of these companies, you can quickly see that they're really not that profitable. They make small loans and have substantial overhead. Without insanely high rates on the loans, they wouldn't be able to turn a profit. So the industry is basically a bad deal for consumers and a below-average deal for the lenders.

According to the Community Financial Services Association of America, an industry trade group, "A study by the FDIC Center for Financial Research found that "operating costs lie in the range of advance fees" [collected] and that, after subtracting fixed operating costs and "unusually high rate of default losses," payday loans "may not necessarily yield extraordinary profits. "So I'm willing to defend the industry when it's appropriate. But I've seen some "public service announcements" for the industry on television lately (CNBC of all places -- How many CNBC viewers use payday loans? Only the ones who actually follow the stock tips of the pundits, I bet ....). I can't find the latest one online but here's an old one you can watch on YouTube. At the end of the video, which features smiling well-spoken voices explaining how payday loans have helped them, a voice cautions consumers to "always use payday loans responsibly."

Here's my question: If the payday lending industry only made loans to people who are using them responsibly, would they be able to turn a profit? I somehow doubt it.

I appreciate the message behind the commercial but it seems a bit like a tobacco company saying (They're not allowed to say this by the way) "Please smoke responsibly." True, smoking once a year would be perfectly responsible ... But how many people do that or use payday loans responsibly.

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