As families and faith communities prepare for the end-of-year holidays, some will feel the financial stress associated with the festivities and gift-giving. The holidays and the new beginnings that come with another year are a wonderful cause for celebration, but no one should fall into a long-term debt trap because of them.
We don’t want people to swear off gifts or celebrating. But this is also a boom time for payday lenders to prey on the poor. A payday loan may sound tempting, but it isn’t worth the stress and endless fees it brings.
These fast cash advances seem enticing because of their easy availability, but small-dollar payday loans and larger car title and installment loans usually do more harm than good. The federal Consumer Financial Protection Bureau says four out of five payday loan borrowers re-borrow a payday loan within two weeks of paying off a previous loan. This is the payday loan debt trap. Car title loan borrowers risk having their vehicle repossessed if they can’t afford to pay off their loan.
These fringe financial storefronts locate in working class neighborhoods, using flashy signs and promises of quick cash to draw consumers. They also advertise heavily on the radio and direct mail. In 2016 alone, there were 11.5 million payday loans to 1.8 million borrowers in California; these loans carried an average interest rate of 372% APR and most consumers took out ten loans during the year. The car title and installment lending market is also growing, which is very concerning since the majority of loans between $2,500 and $5,000 carry interest rates of more than 100% APR. Families struggling to make ends meet should avoid these loans at all costs, or risk long-term financial catastrophe.
Recently the federal Consumer Financial Protection Bureau issued regulations to rein in the payday loan debt trap. However, the rule won’t go into effect for nearly two years allowing plenty of time for legal challenges or repeal. In fact, the fate of the CFPB is in question, given the current conflict over who actually oversees the agency. It’s clear we can’t rely on the feds to eradicate this problem.
The Los Angeles County Board of Supervisors is considering how to strengthen consumer protections against predatory lenders through limits on the number of storefronts that can locate in unincorporated areas and a consumer education campaign. CLUE wholeheartedly supports these measures.
The Legislature must tackle this issue in 2018 and beyond to make sure working families don’t become victims of high-cost lenders. Until state policy makers reform the laws that allow legal loan sharks, the best protection is prevention.
If you find yourself short on cash this holiday season, consider your options. Can you delay your purchase, use a credit card, layaway or arrange a payment plan? Can you borrow from a friend, family member or your employer? Can you get help from a charitable organization? Any of these options would be better than signing up for the long-term debt trap.
Pastor Stephen “Cue” JnMarie is a former Virgin Records hip-hop artist who became the pastor at Skid Row’s Church Without Walls. He joined CLUE’s Black/Jewish Justice Alliance in 2014 after hearing about it from a program at USC’s center for Religion and Civic Culture. In addition to his pastoral duties, Pastor Cue is a faith-rooted organizer for CLUE.