Seniors' Social Security checks latest target of predatory lenders

Similar to how check cashers and payday lenders set up shop around military bases to prey on enlisted personnel and their families, they're now lurking around retirement homes to prey on the elderly. And worse, a loophole in federal law allows them to have Social Security deposits made directly to their accounts, from which they dole out "allowances" to their victims.

The Wall Street Journal explains:

Such lenders are increasingly targeting recipients of Social Security and other government benefits, including disability and veteran's benefits. "These people always get paid, rain or shine," says William Harrod, a former manager of payday loan stores in suburban Virginia and Washington, D.C. Government beneficiaries "will always have money, every 30 days."

The law bars the government from sending a recipient's benefits directly to lenders. But many of these lenders are forging relationships with banks and arranging for prospective borrowers to have their benefits checks deposited directly into bank accounts. The banks immediately transfer government funds to the lenders. The lender then subtracts debt repayments, plus fees and interest, before giving the recipients a dime.

As a result, these lenders, which pitch loans with effective annual interest as high as 400% or more, can gain almost total control over Social Security recipients' finances.

So it should come as no surprise that these outfits are "clustered around government-subsidized housing for seniors and the disabled" according to a HUD data analysis cited in the article.

The article has several horror stories, including the case of an illiterate senior in Alabama ("who believes he's 80 but isn't sure") who ended up homeless after getting tangled up with a large Georgia company that operates "lending stores" in Alabama, Georgia, Florida and Louisiana.

According to the article, arrangements between lenders and banks to redirect government benefit deposits aren't tracked by any regulatory agency so the extent of the problem is not known. But, it says that a "2006 study by the Consumer Federation of America found that one-fifth of those without conventional bank accounts are receiving their government benefit checks through nonbanks, including payday lenders that also operate as check-cashing stores."

Labels: economic justice, predatory lending, seniors