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High Interest Payday Loan Lenders Target Vulnerable Communities During COVID-19

With millions of Americans unemployed and facing financial hardship during the COVID-19 pandemic, payday lenders are aggressively targeting vulnerable communities through online advertising.

Some experts fear that more borrowers will start taking payday loans despite their high interest rates, which has happened over the course of the last decade. financial crisis in 2009. Payday lenders market themselves as a quick financial fix by offering quick cash online or in storefronts – but often lead borrowers into debt traps with triple-digit interest rates ranging from 300% to 400%, explains Charla Rios of the Center for Responsible Lending.

“We anticipate that payday lenders will continue to target distressed borrowers because this is what they have done best since the financial crisis of 2009,” she said.

After the Great Recession, the unemployment rate peaked at 10% in October 2009. In April 2009, unemployment reached 14.7% – the worst rate since monthly record keeping began in 1948 – although President Trump is celebrating the 13.3% improved rate released on Friday.

Despite this overall improvement, black and brown workers still experience high unemployment rates. The unemployment rate for black Americans in May was 16.8%, slightly higher than in April, a testament to the racial inequalities that are fueling protests nationwide, NPR’s Scott Horsley reports.

Data on the number of people taking out payday loans will not be released until next year. Since there is no federal agency that requires states to report on payday loans, the data will be state-by-state, Rios says.

Payday lenders often let people borrow money without confirming that the borrower can repay it, she says. The lender accesses the borrower’s bank account and directly collects the money on the next payday.

When borrowers have bills due during their next pay period, lenders often convince the borrower to take out a new loan, she says. Research shows a typical payday borrower in the US is trapped 10 loans per year.

This debt trap can result in bank penalties for overdrawn accounts, damaged credit and even bankruptcy, she says. Some research also links payday loans to worse outcomes for physical and emotional health.

“We know that the people who take out these loans will often be stuck in some quicksand of consequences that lead to a debt trap that they find it extremely difficult to get out of,” she said. “Some of these long-term consequences can be really dire.”

Some states have payday loan prohibited, arguing that it causes people to incur unpayable debts due to the high interest charges.

The state regulator of Wisconsin has issued a statement warning payday lenders not to increase interest, fees or costs during the COVID-19 pandemic. Failure to comply can result in license suspension or revocation, which Rios says is a big step given the potential damage from payday loans.

Other states like California cap their interest rates at 36%. Across the country, there is bipartisan support for a 36% rate cap, she said.

In 2017, the Consumer Financial Protection Bureau published a rule that lenders must review a borrower’s ability to repay a payday loan. But Rios says the CFPB could repeal that rule, which will lead borrowers into the debt trap – forced to pay off one loan with another.

“Although payday marketers present themselves as a quick financial fix,” she says, “the reality of the situation is that more often than not people are stuck in a debt trap which has led to bankruptcy. , which led to a re-loan, which led to damaged credit.


Cristina Kim produced this story and edited it for release with Tinku radius. Allison Hagan adapted it for the web.

This article was originally published on WBUR.org.

Copyright 2021 NPR. To learn more, visit https://www.npr.org.

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