A lot of people ask me why I hate payday lenders and Quick Cash Loan sharks with the rage of a thousand burning suns. They’re on nearly every corner, and this problem isn’t exclusive to the South. On the other hand, lack of banking resources in rural areas does impact people living in the South, where many people find it easier to encounter a check-cashing establishment than a bank branch since fewer banks will open a branch in a rural area.
In my birth state of Alabama, short-term lenders are legally allowed to charge a maximum APR of 456.45% on 14-day loans of $100. The maximum short-term loan amount is $500 with a term of 10-31 days. Louisiana’s max is $350, with a staggering 780% maximum APR. Texas has almost no regulation on payday lenders, and Georgia has banned short-term lending under their racketeering laws. The average borrower from these businesses makes between $10,000 and $20,000 each year and is more likely to take out 17 loans in a 12-month span than taking one loan.
In recent years, online short-term lending businesses have grown due to their ability to skirt state regulations. These companies distance themselves from merchant cash advance businesses due to the growing identification toward the need of government intervention in their lizardry. Nonetheless, they spend gobs of money to lobby deregulation, arguing that these online lenders are capable of self-regulation since their interest rates tend to be lower than their absurd merchant counterparts.
Most payday loan borrowers have to renew their loans to pay off their previous balance. Obviously, this traps people in cyclical debt. These predatory businesses then garnish wages, file liens and judgments in court, and harass their customers and their customer’s references with threatening collection phone calls. Slowly, small banks and credit unions are realizing they can profit off of non-predatory short-term loans, and the payday industry is starting to come up against regulation and usury laws that attempt to usurp cycles of debt.
Last week, two pioneers of payday loan business were found guilty of racketeering, generating $688 million dollars in the short-term loan business. They conspired to make interest rates ungodly high, and “conspired to evade state laws criminalizing such loans by paying three native tribes to pretend they were the actual lenders in order to claim sovereign immunity.” The case was settled at $260,000 rather than the original $10 million.
In October of this year, the Consumer Financial Protection Bureau announced new rules that affect the interest rates of short-term loan business, which are now, according to The New York Times, more prevalent than McDonald’s restaurants. The CFPB’s regulations are not wild or over-regulatory. They require underwriting practices that will better ensure a client can pay back what they borrow, and prohibit making loans to someone who already has outstanding balances to stop the cycle of debt.
One small lender in Louisiana noted that these regulations might lead to family-owned payday loan businesses going out of business, with many consumers desperate for aid in short-term underserved locations like rural towns, claiming, “There’s going to be a lot of people who have no place to turn in an emergency situation.”
You can read the CFPB’s regulations here, which were proposed in October of 2017.
According to this report on the demographics of Payday Loan business, 25% percent of short-term loan borrowers are unemployed (10%), disabled (12%), or retired (3%). 20% of payday loan business occurs in, you guessed it, the South. Here’s a lovely chart that shows just how much more the South uses these businesses:
The West makes up 12% total, Midwest in second place with 13% total, Northeast the lowest at 5%, and the south 20%. From what I can gather, the missing 50% is further divided by urban and rural consumers, where urban wins in the demographic of most payday loan consumption: 7%.
There’s a pretty simple reason why I hate Payday Loan sharks, and J.D. Vance’s support of these businesses in Hillbilly Elegy–citing their prevalence in low-income areas where bank branches are rare, and as an option so that people can avoid late-fees or overdraft fees by taking out a loan for a few days–did not change my mind. These business abuse the poor, charging outrageous interest and trapping people in cycles of taking short-term loans out to pay off outstanding loans.
Moreover, one man trapped in the cycle of payday lending made this comment: “‘I had a friend who had back surgery, and it was so painful, he said, ‘If the choice is between back surgery and dying, consider dying.’ ‘Well, I give people the same advice about payday loans,’ Chaney said. ‘If the alternative to a payday loan is dying, think long and hard about dying.’” In the same article, NBC reporter Bob Sullivan notes how addictive this borrowing cycle can be. On a base level, think about the rush you, my reader, get when you see that your paycheck has been deposited. Now think about a poor person checking their bank account after getting an online Quick Cash loan. Someone who rarely sees a thousand dollars in their account might see that comma before the zeroes and experience the same rush, turning the experience into a gambling problem, except there is never any big payoff: it’s all debt. These establishments are usury, and they are not an option.
I believe that all short-term lending establishments should be removed from poor areas, online short-term lending abolished, and very strict policies enforced on major banks that have begun offering short-term loans. That’s extreme, and if that ever happens (it won’t), it will cause huge obstacles for people that depend on quick cash loan places to survive. I don’t have an easy answer for what to do about people that depend on these locations, other than to replace Quick Cash loan merchants with small credit union branches. But even that won’t be helpful if done correctly and without predatory practices. There’s no easy answer other than continuing to make Payday Loans inaccessible and helping people living in poverty and the working-class to not need Payday Loans. And I don’t know that I’ll ever get to see that day.
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Make sure to campaign for Doug Jones in the Special Senatorial race in Alabama against the despicable Roy More. You can read how to get involved in Jones’ campaign here.
Peace and blessings, call your Senators.