Payday lending = financial quicksand
Of the many ways that people are fleeced by financial institutions, one of the most egregious is "payday lending," which gives cash-strapped consumers an advance -- with exorbitant interest rates -- on their paychecks.
The companies that make billions from these schemes -- from fly-by-night stores to the biggest names in finance -- claim they are providing a needed, short-term service to the working poor. But the Center for Responsible Lending, the leading advocate for fair lending practices, has released an excellent new report which shows that the lucrative payday loan industry is based on driving people deeper into debt:
The long-term solution, advocates like the Center argue, is strong legislation that reins in predatory financial institutions. That requires taking on powerful finance interests; until policy change is forthcoming, many are responding to the Center's research by heightening financial literacy:
The companies that make billions from these schemes -- from fly-by-night stores to the biggest names in finance -- claim they are providing a needed, short-term service to the working poor. But the Center for Responsible Lending, the leading advocate for fair lending practices, has released an excellent new report which shows that the lucrative payday loan industry is based on driving people deeper into debt:
Every year, payday lenders strip $4.2 billion in excessive fees from Americans who think they're getting a two-week loan and end up trapped in debt ... [A]cross the nation payday borrowers are paying more in interest, at annual rates of 400 percent, than the amount of the loan they originally borrowed.Another important finding of the report is that reform works:
Despite attempts to reform payday lending, now an industry exceeding $28 billion a year, lenders still collect 90 percent of their revenue from borrowers who cannot pay off their loans when due, rather than from one-time users dealing with short-term financial emergencies. [...]
States that ban payday lending save their citizens an estimated $1.4 billion in predatory payday lending fees every year.You can read the full study here.
The long-term solution, advocates like the Center argue, is strong legislation that reins in predatory financial institutions. That requires taking on powerful finance interests; until policy change is forthcoming, many are responding to the Center's research by heightening financial literacy:
U.S. Rep. Artur Davis, citing national reports indicating Alabamians have a higher likelihood of being victimized by predatory lenders, is hosting a lending workshop in Birmingham to help protect consumers.
The Fair Home Lending Education Workshop will take place from 11 a.m. to 1 p.m. Saturday in Birmingham City Hall's council chambers. Representatives of various agencies will participate in a panel discussion and share tips on how individuals can avoid being victimized by unscrupulous lenders.
2 Comments:
Before publishing such information, I would recommend verifying facts and doing some research. Start by going to a payday lending location and speaking with the customers who actually use the service. Then possibly contact someone in the industry for facts. It is very frustrating to hear those with access to credit say they want to take the option away from those without it. It is not the customers of these stores that have a problem with these short term loans.
As payday lending is restricted it is important to make other structural changes that will facilitate the lives of those who have little choice but to use payday lenders. A few years ago the state of North Carolina went from paying state employees on a once-every-two-weeks basis to a once-a-month basis in order to save payroll administrative costs. A consequence of the change was a substantial jump in the number of low-wage state employees who used payday lenders. The NC needs to go back to paying low-wage workers twice a month. More generally, states need to think creatively about short-term financing alternatives for low-income households.
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