UFW takes on payday loan business in 2015 ‘State of the Dream’ report; says costs $3K per family per year
[Payday loan businesses] are literally taking money from people that cannot afford to pay it. That is more money than the U.S. government spends on all food-based assistance programs annually.”
Over 93 million people are doing most or all of their banking through predatory fringe lenders and they are paying an average of $103 billion per year in fees and interest, the Boston-based non-profit United for a Fair Economy says in its annual report made public Jan. 14. “This is more money lost in poor communities than the United States spends on domestic food aid annually,” says the report, adding: ” We as a society end up subsidizing that lost income (an average of $3,029 per affected household) through a social
safety net that is already underfunded and overcapacity.”
UFW is an organization focused on challenging “the concentration of wealth and power that corrupts democracy, deepens the racial divide and tears communities.” The organization’s annual report catalogs the various forces that together reinforce economic inequality along the lines of race.
The report, with a forward written by Van Jones, recommends:
- Expanding the payment and banking services offered at 31,000 branches of the U.S. Postal Service, as is common in other countries.
- Building on effective Bank On and Lending Circle programs.
- Capping interest rates and limiting the amount and length of payday loans, fees and interest, and increase regulation of non-bank lending services by the federal Consumer Financial Protection Bureau.
- Modernizing the Community Reinvestment Act.
“Payday lenders are perhaps the most menacing of alternative financial service,” says the report. “Lenders tend to be largely concentrated within poorer communities of color.” The report also notes “there are more payday lenders than McDonalds or Starbucks locations in the United States.” Problematically, the payday loan business thrives on repeat borrowers rather than one-time borrowers. This situation is harmful because repeat lenders often build an outstanding balance and incur high interest expenses and other fees. Importantly, payday loan borrowers are often left with a lack of alternatives if faced with an unforeseen expense. Thus, they are left to rely on the lightly regulated payday loan industry, which deliberately sets up branches in poor minority regions.
According to the report, “they [payday loan businesses] are literally taking money from people that cannot afford to pay it. That is more money than the U.S. government spends on all food-based assistance programs annually.” From this perspective, analyzing and considering the negative effects of payday loans might better serve the public interest. Especially to the extent that payday loans complicate and compromise other government efforts intended to alleviate economic distress among poor Americans, reforming alternative financing options should be a national priority.
The full “State of the Dream” report is available here.