Business

Covid-19: Why you should stay away from payday loans

By Charlene Crowell

For the foreseeable future, ‘normal’ life will be indefinitely
suspended due to the global pandemic known as the coronavirus.

Record-breaking employment layoffs in the month of March resulted in the
Department of Labor
<https://www.dol.gov/sites/dolgov/files/OPA/newsreleases/ui-claims/20200551.pdf>
reporting that 10.4 million consumers lost their jobs and filed for
unemployment compensation. As medical experts continue to track the virus,
the New York Times
<https://www.nytimes.com/interactive/2020/us/coronavirus-us-cases.html>
reported at least 214,461 known infections and at least 4,800 related
deaths.

Beyond these statistics, untold numbers of additional school and retail
closures, and an expanding army of people working from home have also been
directly affected by the virus.

Consumers both young and old have passed as the virus continues to spread
across the country. Its viral wrath has spawned hot spots from the Pacific
Northwest’s Seattle, to the Gulf Coast’s New Orleans, the Midwest’s
Detroit and the nation’s largest urban metropolis, New York City.

Zeroing in on the economic impacts of the crisis, people everywhere are
struggling with competing needs in their lives. When living costs exceed
available financial resources, tough times lead to tough decisions about
how to feed families, keep a home to live in, ways to keep utilities
working and a myriad of other day-to-day needs.

Despite a $2 trillion federal rescue enacted with bipartisan support,
checks of $1,200 promised to taxpayers, along with an additional $500 per
child will arrive too late for first of the month April payments for bills
like mortgages and rental payments. Many leaders also warn that despite
its size or range of areas addressed, the legislation was not enough.

In a March 27 House floor statement
<https://financialservices.house.gov/news/documentsingle.aspx?DocumentID=406453>,
Congresswoman Maxine Waters, Chairwoman of the House Financial Services
Committee warned colleagues that their job was not yet complete.

“[I] must make clear that the legislation is far from comprehensive, and
that there are issues it leaves unaddressed and areas where it falls
short…The American people need help now and this bill represents a down
payment on that relief,” said Waters.

A similar reaction came from AARP chief executive Jo Ann Jenkins.

“Older Americans face the one-two punch of coronavirus’s health and
economic consequences, and many need immediate relief and ongoing help and
support to cope with the pandemic,” noted Jenkins. “Those needs are
only set to grow in the weeks and months ahead.”

What can really make a difference between life’s success and failure is
not just what leaders do but also what they didn’t do when they had the
chance. The recent legislative package was silent on interest rates, as
well as forgiveness of federal student loans, negative credit reports or
bans on private evictions for late rental payments.

As the cost of living has risen faster and higher than most consumer
incomes for more than a decade, the likelihood of a savings account large
enough to cover household expenses for a month or more is slim to none.

The Consumer Financial Protection Bureau (CFPB), the agency tasked with
protecting consumers from unscrupulous lenders has been conspicuously
subdued. Instead of forceful and timely agency alerts via multi-media
communications warning consumers about opportunistic scam artists, CFPB
has offered a modest tip sheet on how consumers – not government – can
protect themselves. Fortunately, as the viral saga unfolds, some news
outlets are reporting on the potential harms of consumers turning to
payday and car-title loans.

A joint response by five federal regulars – Board of Governors of the
Federal Reserve System, Consumer Financial Protection Bureau (CFPB),
Federal Deposit Insurance Corporation (FDIC), National Credit Union
Administration (NCUA), and the Office of the Comptroller of the Currency
(OCC) – came on March 26 in a statement
<https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200326a.htm>
that encouraged banks, savings and loans, and credit unions to offer
“responsible small dollar loans” to consumers and small businesses
during the pandemic.

According to the regulators, “responsible small-dollar loans can play an
important role in meeting customers’ credit needs because of temporary
cash-flow imbalances, unexpected expenses, or income disruptions during
periods of economic stress or disaster recoveries.”

Without any specifics defining “reasonable small dollar loans”, the
regulators’ statement could be an inducement to join triple-digit
lenders’ financial exploitation.

For Black America and other communities of color, predatory short-term
loans of $500 or less began decades ago when payday and car-title
storefronts took prominent residence in our neighborhoods across the
country. Loans that were marketed as quick fixes for millions of consumers
morphed into long-term financial nightmares that deepened debt with every
renewal. In many cases, the interest paid on these loans was often double
or triple the amount of principal borrowed.

A coalition of civil and consumer rights organizations released a joint
statement
<https://ourfinancialsecurity.org/2020/03/joint-statement-emergency-government-action-allows-bank-payday-loans/>
warning of the possible spike in high-cost lending by the nation’s
depository institutions – banks, credit unions and savings and loans.

“This is the worst possible time for banks to make predatory payday
loans,” said Americans for Financial Reform Education Fund, the Center
for Responsible Lending, Leadership Conference for Civil and Human Rights,
NAACP, National Consumer Law Center.

“Around the time of the last recession, a handful of banks issued
‘deposit advances’ that put borrowers in an average of 19 loans a year
at over 200% annual interest,” continued the leaders.  “These bank
payday loans disproportionately harmed the financially vulnerable and
badly damaged banks’ reputations. Since 2013 when regulatory guidance
warned against this form of credit, banks have mostly stayed away. We
trust that they will continue to do so as they do not want to repeat
mistakes of the past.”

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