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Monday, June 24, 2013

Comments

Brian Scrip, CRA Officer

America is trapped between the unfairness of payday loans and the reality of the poverty in much of the working poor. After spending the last 15 years as a CRA officer teaching financial literacy to more than 5,000 low income I learned that many Americans have spent years living paycheck to paycheck. They know they need to save but they cannot. One late child support payment can cause a single mother to resort to obtaining a payday loan to pay the school cafeteria bill for her child. The CFPB is wrong about consumers knowledge of payday. By far the majority of the families I taught understand payday loans are expensive and difficult to repay but they also believed they have no other choice.
Data from the payday industry indicates that most loans are used for car repairs and family emergencies. These are loans as a last resort. Many of the households know they are at times cheaper than overdrafts. Over and over I heard “I did not want to go” but learned these loans are used to keep the families financially afloat. Unfortunately, for most of the families that end up in the payday loan cycle there is not exit. They ultimately cannot repay the loans and many then write checks that are then covered by "bounce protection" to repay the loan. This ultimately leads for many households to overdrafts they cannot cover and they forced out of the banking system to become part of the great "unbanked". Then I see them in the “Credit Improvement workshops”.
Mr. Sovern is right in one respect, if we make payday lending a “crime” what and who will replace it? What will I tell the families attending my financial literacy classes when they ask: "Where do we get money when the check is late?" The payday yields and returns are criminal. The CFPB is nearsighted about the fix, and our regulators have the mistaken notion that by encouraging Banks to open new deposit accounts for the "unbanked" will magically fix the problem. Before we can face the answer we need to face the problem

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