Predatory lenders and the politicians who authorize them argue that loans simply help people who need money quickly in an emergency. Unfortunately, their brand of “help” often pulls people down, so that “the emergency” becomes a way of life.
The idea is that borrowers need a small loan to hold them until the next paycheck. The catch is that the interest rates are extremely high. Too often, something happens before the next paycheck and the borrower cannot repay the loan. Thus, the lender renews it, accumulating more interest. Interest rates go up to 400%. A loan of a few hundred dollars can turn into a debt of several thousand dollars and take years to pay off, if ever.
Things are getting worse. The borrower loses his car, then his job, maybe even his house. Any chance to get out of debt and have a better life is lost.
Lenders target the most vulnerable, preying on people of color and low-income residents of deprived areas with limited banking services. Granted, people who turn to payday loans don’t have a lot of options, but the answer is not to give them an option that leads to financial ruin.
Over the years, payday lenders have come under heavy attack on troops at military bases in North Carolina, especially young enlisted soldiers with little experience and struggling veterans.
The Obama administration has worked to curb payday lenders at the federal level, with the Consumer Financial Protection Bureau developing tough new rules.