Time to close the payday loan debt trap

00_juliannemalveaux02Between the unemployment rate report that was released in early September, and the U. S. Census report on income and poverty that was released on September 13, President Obama and his team got great news about the economic status of the average worker.

Incomes are up a whopping 5.2 percent between 2014 and 2015; it’s the first time incomes have increased since 2007. The poverty rate dropped 1.2 percentage points, to 13.5 percent, which translates into 3.5 million fewer people living in poverty.

Millions still poor
Still, poverty rates are way too high – almost one in four (24.1 percent) of African-American households live in poverty. The number of African-American children in poverty, though falling, remains too high (31.6 percent). And the number of people living in “extreme poverty” (with incomes at less than half the poverty line) is alarming – more than ten percent of African-Americans (and 6 percent of the total population) live in extreme poverty.

Even as we celebrate the economic progress of the past year, we must ensure that usurious payday lenders are curtailed by regulators who can restrict their ability to extract interest rates in excess of 300 percent from the very poor.

How it works
Payday lenders provide “emergency” loans for those people who have more month than money, and who simply can’t make ends meet. The loans are small, and the terms are usually something like $15 per $100 for 7 to 14 days. The loan may be secured by a paycheck, a pre-dated check, or an automobile title. If the loan is not paid back on time, a borrower may negotiate an “extension,” which requires more fees. Repeated payday loans result in $3.5 billion in fees each year.

The Consumer Financial Protection Bureau (CFPB) is considering regulations to protect consumers from exploitation and usury from short-term loans and auto title loans. A coalition of faith leaders has asked people who have been affected by payday loans to comment on their website, FaithforFairLending.org, hoping that the CFPB will be influenced by the experiences that many have had with payday lending.

Rev. Sekinah Hamlin, who leads faith initiatives for the Center for Responsible Lending (CRL), says that faith leaders have mobilized because they expect that the payday lending industry will fight any regulations to curtail their activity. The CFPB will be accepting comments about payday lending until October 7.

Living wage necessary
The longer-term solution to the debt trap is better pay for people who could access traditional credit options, or avoid debt altogether, if they earned reasonable pay.

The working family’s agenda that some in Congress have embraced (which includes an increase in the minimum wage, among other provisions to assist those on the bottom) is a step in the right direction.

The fight for $15, which would provide families at the bottom with incomes of about $31,000 a year, would also alleviate poverty and make it easier for people to make ends meet.

Those of us who care about economic justice must make our voices heard before October 7.

Comment online at FaithforFairLending.org, or send your comment to The Center for Responsible Lending, Faith and Credit Roundtable, 302 W. Main Street, Durham, NC 27701.

Julianne Malveaux is a Washington, D.C.-based economist and writer.

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