Payday lenders are the cranky ones who steal Christmas | Economic intelligence


The holidays are upon us, and for many it is a season of stress and financial strain as well as joy – a time when the need for a few hundred extra dollars can seem especially acute.

For payday lenders, title lenders, and auto title lenders, this makes the holidays a season of opportunity. And many of these lenders don’t just go the extra mile at the end of the year; they actually put a holiday theme in their ad!

Cash Title Exchange, a Mississippi-based lender, sent out a colorful direct mail promising “the cash you need this holiday season” and featuring a smiling Santa Claus with an armful of goodies. “Even Santa Claus needs help,” the ad said.

Santa was also co-starred in a TV commercial for TitleMax, based in Savannah, Georgia: “Come to TitleMax now for real hard cash,” the cheerful announcer explains. “Your car title is your credit – Ho! Ho! Ho! “

What these companies don’t advertise, and what many borrowers don’t know, is exactly how much money they will ultimately have to pay for the relatively small amount they immediately receive. Since these loans usually incur fees equivalent to the equivalent of 300-500% annual interest, many borrowers are forced to take out a long series of loans to cover the payments on the first one. Their loan fees often end up eclipsing the amount of money they borrowed in the first place.

Targeting borrowers during the holiday season affects a lot of people when they feel most vulnerable. And the ads aren’t just running in public places, they’re sent in targeted mass mailings to those particularly likely to respond – the elderly or those with low annual incomes.

While loans like these can be marketed as a way to deal with a one-time emergency or get a little extra vacation money, they regularly put people into a cycle of long-term debt. The Consumer Financial Protection Bureau, in its research of the small loan market, found that four in five payday loans end up being renewed or renewed within two weeks, with half of them being part of a sequence. of 10 or more. ready. And that’s exactly the bottom line these lenders rely on: Getting people to borrow repeatedly, paying expense after expense, is their business model.

In 2015, the Consumer Financial Protection Bureau is expected to announce a set of consumer protection rules that could change this market for the better. This should be good news for the holidays: Most Americans think negatively about payday lenders. (65% have an unfavorable opinion, compared to only 15% of a favorable opinion, according to a recent national survey.)

Payday Lenders Are Hurting Americans; but the industry has used political contributions to safeguard its profit stream, and Congress has so far been reluctant to regulate.

A recent report from the Americans for Financial Reform sheds light on exactly how much this industry spends to exert its influence in Washington. During the 2014 election cycle, payday lenders, auto securities and installment payments, as well as other entities that play a role in their operations, reported more than $ 13 million in political spending, much of it of that money from trade associations that represent the industry in Washington. . The major spenders also include some of the big business members of trade associations – the payday lenders themselves. Cash America, a company found by the Consumer Financial Protection Bureau to use illegal debt collection tactics and overcharging military personnel and their families, spent more than $ 1.7 million in the 2014 cycle on lobbying and contributions to the countryside.

But the next holiday season could be a little brighter. The office could ask lenders to verify that the loans are affordable given the borrower’s income and expenses; reduce the payday debt trap from 200 days a year to no more than 90; and give borrowers back control over their own bank accounts. The holidays are a time of joy and giving, and as the residents of Whoville know, there is no room for the Grinch.

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