Have you ever taken out a payday loan? Scraping by, trying to make ends meet in an endless battle against stacking bills and keeping the electricity on? The life of counting every penny is one all too familiar with the majority of Americans today in 2017. Too many times do people find themselves at a loss. To those who feel like they’re drowning, payday loans may appear to be a life raft on the rough waters of debt in today’s America.
To those, payday loans are known as the people who keep the lights on, for just a little longer. For these people who have nowhere left to turn it’s hard to say Payday loans are a bad idea. And who’s to blame them when the majority just need to make it to the end of the week?
But what happens when those payday loans, that last resort for thousands of American’s become more like a whirlpool in the bitter ocean, than a life raft?
Unfortunately that’s right where Gloria James found herself, May 2013. A housekeeper, whose hourly wage was about $12, was forced to that same fate repeatedly. Stuck in America’s limbo, constantly trying to make ends meet.
Trying to keep the lights on, Gloria borrowed $200 from a payday lender in her own backyard in Wilmington, Delaware. The place, Loan Till Payday.
Instead of taking out a two-month loan added with $100 fee, something she had been forced to do several times before, they offered her a one-year loan. A One-year loan that would tack on $1,620 in interest. The equivalent of an annual rate of about 838%. Soon the foreseeable future befell her and she fell behind on the massive payments demanded by Loan Till Payday. A lawsuit was filed in federal court and the Delaware Judge ruled the loan was illegal and on top of that “unconscionable”.
It’d be nice to say this was a rarity among Americans. However it’d be a lie. Thousands of Americans rely on Payday Loans. Most of those loans take their borrower’s financial state as an ‘okay’ to twist them dry of their money and tack on ridiculously giant fees.
However, the government has made massive efforts to crack down on payday lender’s similar to those like Till Payday Loans. Their effects have indeed made ripples in the waters.
Despite surveys revealing that customers are for the most part satisfied, due to the convenience of these payday loans, it doesn’t mean the Payday loans have actually been fair to their vulnerable borrowers. Their borrowers forced into a continuing spiral of bills, payday loans and enormous fees.
Most of the time payday loans are used almost entirely to support the blind budgeting mistakes made by their borrowers. Instead of their intended purpose for emergencies. According to government statistics, even in the 2.5m households of America, one in 50 are forced to use payday loans every year.
The states have been in charge of keeping an eye on their payday lenders. Using interest rate caps to ban payday loans. However payday loans can get away when they tout the title of “credit service organizations”.
The Military Lending Act in 2006 was passed by congress on the federal level, which capped loan rates for service members around 36%. “Operation Choke Point” was launched by the department of justice, forcing banks to break their ties with businesses who may be guilty of money-laundering and incognito payday lenders.
But the real one pushing change in the scene of payday loans would be that of CFPB, Consumer Finance Protection Bureau. The one at fault for implementing new regulations on high interest loans enforcing new rules ranging from underwriting standards and restrictions that keep borrowers from drowning under debt! CFPB added up the data and foresee that they can reduce faulty payday loan volumes that could climb even above 80%.
With new regulations in place we’ve already seen the change when The Center for Financial Services Innovation, have seen the fall of payday loan volumes of about 18% since 2014. Revenues falling to about 30%. Already lenders have closed more than 500 stores and employment in the game of payday loans fell by 3.5%.
A paper written up by two economists, have reached the conclusion that the Military lending Act had “no significant benefits to service members”.
And the Trump Administration are more than likely to push against CFPB’s new regulations. And even if the new rules do make it, nobody for sure knows what will happen in the game of payday loans.
At the end of it all the waters are still murky. Depending on who you talk to, you’ll hear a different side of payday loans, from those who can keep their lights on because of them, to those who’ve been chewed up and spit out by the system, coming out in a worse financial state than before.