Across the pond: We take a look at payday loans for low-income users

 

The payday loans dilemma seems to be consistent the world over. In any country, the companies that fork out a quick loan to just about anybody are currently under siege. These loads have different names all over the globe. From title loan, to short-term credit loan, to an emergency loan, but the most common description for these loans is the ‘payday’ loan, and according to different authorities, payday loans for low-income users. I think we all know what the payday loan was designed for, and that it was meant to live up to its name. A loan to tide you over until you get to your next pay check. A quick loan that obviously comes with a hefty interest rate, fees, and charges. A payday loan is a loan that was never meant to be paid off over months, and that is where the problem started. People began to see payday loans as credit for low-income users and these users have difficulty repaying a loan, let alone the electricity, rent, or supper.

Are payday loans for low-income users doing more bad than good?

While addressing the population of Birmingham, Alabama, President Barack Obama said:

“The idea is pretty common sense: If you lend out money, you have to first make sure that the borrower can afford to pay it back. But if you’re making that profit by trapping hard-working Americans into a vicious cycle of debt, you’ve got to find a new business model.”

Our cousins on the other side of the Atlantic are not much different than us. Here in the UK we have seen the FCA (Financial Conduct Authority) take the reigns of the short-term payday industry, passing across the board regulations that will ultimately be beneficial for those payday companies that have been approved. Competition is actually being generated. In America, Federal Government has begun to compile a set of regulations that will apply country-wide in comparison to each state for itself. At the center of the CFPB (Consumer Financial Protection Bureau) is a set of regulations requiring payday lenders to verify that the customer have an income that allows repayment of the loan. This stops payday loans for low-income users to spiral out of control, landing in the debt-trap that the president speaks out against.

Do payday loans affect low-income Americans? Or can the economy take some of the wrap?

According to by the Washington-based think tank, Urban Institute, around 2.5 million households took out a payday loan in 2013. Since that time, the number of loans taken out by Americans has risen by 19 percent, even though unemployment has fallen and the economy is busy bouncing back. On average a single borrower brings in less than 23 000 dollars, which is well below the poverty line. 80 percent of loans are rolled over of renewed incurring more fees. Over 12 months, on average more than half of the total borrowers had more than 10 loans and had rolled over existing loans or borrowed again.

Are payday loans designed for those living in poverty?

The answer is no, and the fact that the poor have no choice than to approach payday lenders for financial relief says a lot about the economy that has made such a brilliant come back. Don’t mistake a payday lender’s store for the welfare queue.

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