Reprinted from Campaign For America's Future
If you don't have a bank account -- and millions of American's don't -- how do you cash a check or pay a bill? Even if you do have a bank account, how do you get a small loan in an emergency? One survey showed that as many as 63 percent of Americans would be strapped to raise $500 if they needed it in a crisis.
This is where the predatory "payday loan" industry comes in.
The term for people with no bank accounts is "unbanked." According to the 2013 FDIC National Survey of Unbanked and Underbanked Households, "7.7 percent (one in 13) of households in the United States were unbanked in 2013. This proportion represented nearly 9.6 million households." On top of that, "20.0 percent of U.S. households (24.8 million) were underbanked in 2013, meaning that they had a bank account but also used alternative financial services (AFS) outside of the banking system."
That is millions and millions of Americans who either do not have a bank account or otherwise have to use "alternative financial services." 2014's AlterNet article The New Financial Scam Driving Workers Deep Into Debt pointed out what this means, "If you can lure people into borrowing then you own them, sometimes literally -- it's a game as old as money itself..."
"These are the very people who are poor credit risks and cannot get loans from the usual sources. So they often turn to 'payday lenders.' Payday loans can have an interest rate up to 500%. They charge very high interest rates for short-term loans, often trapping people into a vicious debt spiral, borrowing to pay the interest on earlier borrowing while money for food and rent disappears. These lenders charge 15 percent or more for a two-week loan. That's not 15 percent per year, that's 15 percent for two weeks.
"The combination of this huge portion of Americans living on the edge, and few lending sources available, the predatory payday loan industry was at one point said to have more payday loan outlets than McDonald's and Burger King outlets combined."
These "alternative financial services" are known as payday lenders and check cashing services. These outfits prey on people who do not have a bank account or can't otherwise get a loan, so they look for another way to get a loan in an emergency or cash a paycheck.
Why is this industry called "predatory?" Let's hear from industry insiders.
Cash America is a payday loan outfit. In 2007 the company's CEO said of their "customers," "the theory in the business is [that] you've got to get that customer in, work to turn him into a repetitive customer, long-term customer, because that's really where the profitability is."
The chairman of the payday lender...supported Consumer Credit Research Foundation and president of the Payday Loan Bar Association, wrote in an email: "...In practice, consumers mostly either roll over or default; very few actually repay their loans in cash on the due date."
Payday lender ACE Cash Express even put out a training manual for new employees, training employees that their job is to push borrowers from one payday loan to the next.
Predatory, for sure. Trapping people into a cycle of debt for the purpose of draining their every last dollar. This "debt trap" is responsible for ruining the lives of millions.
Florida's Predatory Payday Lenders
In March the National Council of LaRaza, in partnership with The Center for Responsible Lending, released a report, Perfect Storm: Payday Lenders Harm Florida Consumers Despite State Law, looking at over a decade of payday lending in Florida. According to the report...