Payday lenders market themselves as a quick financial fix by offering quick cash online or in storefronts — but often lead borrowers into unpayable debt. This debt trap can lead to damaged credit, bankruptcy and even worse health outcomes. hereandnow
Despite this overall improvement, black and brown workers are still seeing elevated unemployment rates. The jobless rate for black Americans in May was 16.8%, slightly higher than April, which speaks to the racial inequalities fueling nationwide protests,Data on how many people are taking out payday loans won’t come out until next year. Since there isn’t a federal agency that requires states to report on payday lending, the data will be state by state, Rios says.
Payday lenders often let people borrow money without confirming the borrower can pay it back, she says. The lender gains access to the borrower’s bank account and directly collects the money during the next payday. When borrowers have bills due during their next pay period, the lenders often convince the borrower to take out a new loan, she says. Research shows a typical payday borrower in the U.S. is trapped intoThis debt trap can lead to bank penalty fees from overdrawn accounts, damaged credit and even bankruptcy, she says.
In 2017, the Consumer Financial Protection Bureau issued a rule that lenders need to look at a borrower’s ability to repay a payday loan. But Rios says the CFPB may rescind that rule, which will lead borrowers into debt traps — stuck repaying one loan with another. “Although payday marketers are marketing themselves as a quick financial fix,” she says, “the reality of the situation is that more often than not, people are stuck in a debt trap that has led to bankruptcy, that has led to reborrowing, that has led to damaged credit.”
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