Crisis, The, Spring 2010 by Guy, Andrew
Money is tight. You just paid most of your bills for the month. The next pay check is two weeks away and you are watching every penny.
Then the car breaks down.
You could borrow from friends or family, but you don’t want to impose. And besides, they’re broke, too. All you’ll need is a short-term bridge loan to fix your ride. You need it to get to work.
A quick visit to the payday loan center on the corner leaves you with cash in your pocket. All you had to do was write a personal check for the amount you wanted to borrow and promise to pay it back in full by your next pay day. You’re pleased at being so resourceful in solving this temporary setback.
But what you don’t realize is that you have likely just begun a cycle that entraps millions of people every year. The payday loan industry is a multibillion-dollar-a-year enterprise, operating out of corner stores in strip malls in almost every neighborhood in every size city.
The stores charge exorbitant interest rates for loans, and a missed payment could result in a bounced check or possible overdraft fees. As a result, a simple loan of a few hundred dollars can end up costing a consumer thousands.
Even more disturbing: Most payday lending centers are located in predominantly minority areas, with African Americans and Hispanics more likely to be victims of this type of predatory lending. The centers are three times more likely to be in a minority neighborhood than in a White community, says Keith Corbett, executive vice president of the Center for Responsible Lending, a nonprofit advocacy group.
“I think payday lending is the Jim Crow issue of our time,” Corbett says. “The payday lenders come in, and they charge the minimum of 400 percent interest. They borrow money from banks at cheap rates, then they loan it to people in the community at really high rates.”
The issue is so serious that the NAACP has gotten involved. The organization is partnering with the Center for Responsible Lending and others to advocate for stricter regulations on the payday lending industry.
“The answer, really, is usury caps,” says Hilary Shelton, NAACP senior vice president for advocacy and policy and director of the NAACP’s Washington bureau. “You have to limit the amount of the APR [annual percentage rate]. There are states that cap the APR at 36 percent,” which is the amount charged to members of the military. “There should be the same cap at the federal level.”
Shelton says that a $300 payday loan has $45 fee. The borrower receives only $255, but is charged interest on the full $300.
If the loan is repaid on time, then everything is fine
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