Little Rock With the admissions that the bigger-than-God-and-government banks are skimming gazillions in profits from predatory payday loans, some welcome sunlight is shining on the dark caves of financial services for workers trying to stretch the money to make the month or deal with emergencies. The Pew Research Center released a report on some of the experiences of payday lending consumers that seems to match a similar study from ACORN Canada of practices there more than 5 years ago.
Pew’s summary of their findings is straightforward:
“Pew’s survey results reveal that people choose these loans to avoid outcomes like long-term debt, borrowing from family or friends, overdraft fees, and cutting back further on expenses. But the average loan requires a repayment of more than $400 in two weeks, the typical duration, when the average borrower can only afford $50. When borrowers have trouble paying off the loan, they return to the very same choices they initially tried to avoid.”
Additionally, Pew said that, “the average payday loan is $375. Americans spend $7.4 billion per year on the loans, including an average of $520 in interest per borrower who ends up indebted for five months of the year.” As terrible as that sounds, the ACORN Canada study found far worse, even though the general legal climate for payday lenders, which we campaigned on aggressively and with significant success in several provinces, is better in Canada. We found in a more extensive survey that on average it took 14 months for payday borrowers to escape the payday lenders. The first loan generally initiated a cycle of something akin to borrower “recidivism” that put the loan victim on a yo-yo back and forth with new and adjusted loans before they were bounced out or escaped with loans outside the system.
The Pew figures are bad enough when the reality emerges that interest overwhelms the initial loans. Reading the study, it would also seem that the Pew figure does not include the additional bank charges and fees triggered through the collection process through automatic bank drafts, NSFs, and surcharges. At the same time Pew finds that “while payday loans are often presented as an alternative to overdrafting on a checking account, a majority of borrowers end up paying fees for both.”
The industry association claims to the New York Times that the “typical fee” is $10 to $15 on $100 borrowed, which is obviously complete balderdash.
This study, our study, and a million others cannot alter the fact that these loans are predatory, essentially because they can be. Families desperate for money to bridge gaps and emergencies see no choices and therefore with eyes wide open march to the slaughter of these outfits, until drowning or pulled ashore when forced to confront their own embarrassment. Nonetheless the industry can lie brazenly, since they and their bankers know no shame. Predation is the business model.