Predatory lenders are making money off rising gas and food prices

A few months ago, Yumekia Jones, a legal assistant at the Mississippi Center for Justice office in Indianola, made an unusual number of calls – almost 400% – from people in need of emergency financial assistance.

Most people want to avoid a payday loan, which offers instant cash against future payments without a credit check and brings an interest rate of more than 500%. But rising prices for food, fuel, and rent offered a few options.

Inflation rates have been high for 40 years and unemployment has nearly halved by half a century. For many economists these two facts point to serious economic problems.

For creditors, however, they are showing off happy days and good times ahead.

“Lack of low employment and inflation often mean that consumers may need to borrow more money to manage through unforeseen setbacks and costs while earning money to repay these loans,” said David Fisher, short-term CEO, loan financier Enova. at a lower cost. May. The company, which is an online borrower only, surpasses quarterly earnings by 7.7%.

Enova declined to comment on the matter.

Given the current economic downturn, Fisher said his company “relied heavily on demand for our marketing efforts,” and spent a lot of money to attract new customers. That bore fruit. He said about 44% of all loans were given to new customers in the last quarter.

That increase in first-time borrowers came as inflation for U.S. consumers reached its highest level in more than four decades and Americans struggled to put food on their tables and gas in their tanks.

Working driving to work

The national average for a gallon of gas is just under $ 5, a 61% increase from last year. The jump comes as many employers require employees to return to work in person. The lowest government earnings, meanwhile, stand at $ 7.25 per hour, which has been the case since 2009. Low-paid workers have to work for about 14 hours to fill their tank.

About two-thirds of Americans now live by check to pay, according to the June LendingClub survey. That number jumps to 82% among employees earning less than $ 50,000.

The rate for low-income debt points in the US is also declining, according to LendingClub data. About 40% of Americans earning less than $ 50,000 and a life check to pay have less than 650 credit points making it difficult for them to get a loan through a traditional lending institution or qualify for additional credit. The average school credit score in the US is 714, according to Experian.

For those Americans, high interest day loan loans are still readily available. These low-income loans, usually between $ 100 and $ 1,000, are found in more than half of all US states with less regulation. Proof of income and bank account for all most borrowers who need to go out with cash.

Current data tracking the amount of borrowing date payouts have not yet been released, but based on previous trends it is possible to increase lending, said Alex Horowitz, chief executive officer of Pew’s consumer finance project. “Our research data shows that about 70% of day-to-day lenders use loans mainly at normal costs and to deal with rising or changing costs.”

Debt trap

These loans are often expensive but borrowers may not have the financial means to seek alternatives or do not think they have any other option. There is currently no federal cap on high interest rates on low dollar loans. Not all provinces allow them, and it is in those provinces that do so to decide whether to use their caps.

Of the 32 U.S. states that allow for day-to-day lending, the mid-year interest rate ranges from 200% in Minnesota to 664% in Texas.

Lenders are usually unable to repay the loan amount when it arrives, usually within two to four weeks, resulting in them taking out a second loan with additional repayments. That creates a debt cycle that is difficult to break. About 1 in 4 payday loan recipients take out an additional nine or more loans, the Consumer Financial Protection Bureau found.

Studies show that Black and Latin communities are equally targeted by expensive credit providers. In Michigan, where the interest rate for the payday loan is 370%, there are 7.6 payout stores for every 100,000 people in areas where the population is over a quarter Black and Latin. That is about 50% higher than in other areas, according to data provided by the Borrowing Center.

The most expensive mortgage companies claim to provide the necessary services to low-income communities by issuing loans to Americans from traditional banks that refuse to work for them. They say higher interest rates are needed because of the greater risk of non-payment. But consumers’ lawyers say this is a false statement.

Seven major US banks, including Bank of America, Wells Fargo and Truist, have developed programs that offer low interest rate lending options at a lower interest rate, Horowitz said. They plan to look at the banking history – not the credit score – to determine who is eligible for the loan.

“There are 18 states and the District of Columbia that block loans on payment day and live well without these animal loan products,” said Nadine Chabrier, senior policy adviser at the Center for Responsible Lending. “There are fair and responsible lending products with low interest rates and fees available and people can use them.”

Shortly after the Covid-19 epidemic hit the US, the Consumer Financial Protection Bureau abolished large portions of the 2017 law that required lenders to assess consumers’ ability to repay loans. The law says that it would cut off most of the money they make from borrowers who miss out on a loan. By repealing parts of the law, the CFPB said it would ensure “continued availability of low-cost borrowed products to consumers who want it.”

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