Magazine article The Crisis

Payday Loans: The Modern Day Loan Sharks

Magazine article The Crisis

Payday Loans: The Modern Day Loan Sharks

Article excerpt

At some point in many of our lives, we have struggled financially-borrowing to make ends meet. Today, there are ways to get loans that keep you coming back, voluntarily or involuntarily.

Payday loans are used by many people who need funds to pay bills and debts. The loan companies are found in many neighborhoods and typically have signs boasting "Cash Today!" The average payday loan client is the African-American or Latina single parent who, with little or no income entering the home, sometimes needs assistance with household expenses.

"In the short term, it looks like a solution to a financial problem, but in fact what all the surveys show is it becomes a bigger drain on someone's income and you're trapped because you can't find enough money to pay it off," says Charles Lowery, director of Fair Lending and Inclusion for the NAACP Financial Freedom Center. "Sometimes people end up going from one payday lender to the next. People really don't understand how expensive they really are."

Lowery is working to regulate the loan options as well as the interest rates, which can be as high as 36 percent. He hopes to get lower interest rates and educate communities on the ins and outs of payday lending. The [NAACP] also works with the states to see what laws exist in each to allow or cut back on payday lending, to remove payday lending or to require interest rates caps.

"We've been a voice about this, and we're trying here at the economic department to have an even bigger voice in this issue, but remember, when you're dealing with issues of finance, unlike criminal justice issues or health matters that affect the community, these issues are more private to people, " Lowery says.

Lowery points out that the overall costs of payday loans are far more than initially expected. You can end up paying upwards of $40, 000 for a $10, 000 loan, he notes. With high interest rates and lenders gaining access to personal bank accounts, people become unable to escape the loan contracts. …

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