Do you live paycheck to paycheck? Do you know anyone who does? More than half of Americans do, with no emergency savings and no cushion.(1) While many rely on credit cards or lines of credit to cover unexpected expenses, millions who cannot access such services rely on payday lenders to get them through. Most of these payday lenders are sharks, preying on poorer neighborhoods. Mortgage loan interest from a bank runs at 4% - 5% per year; credit cards typically charge 10% - 20%. But go to a payday lender when you're in need, and they will charge you anything from 100% to more than 1000% - sometimes with another fee if you can't pay it off on schedule. That $300 you need to pay for your child's medicine or an emergency car repair may end up costing you $1000, or even more, by the time you are able to pay it off.
Thousands of payday loans are issued every day. Business is booming. California and plenty of other states have more payday lending outlets than they have McDonalds'. Not to mention the seemingly inexhaustible selection of websites which promise cash advances on a few clicks - at exorbitant rates.
The statistics are scary. Seriously scary. Mehrsa Baradaran is a University of Georgia professor and the author of the new book How the Other Half Banks. It's an explanation of how we got to this point, how banks have abdicated their social responsibility to provide credit to the non-affluent. In a recently published article in The Atlantic, continuing on with her book's theme, she states:
anywhere from 20 to 40 percent of the population must rely on check cashing or payday lending services. The impact on those most reliant on these services? Devastating. From the latest Harper's Index... Amount the average worker without a bank account will pay in unnecessary fees over a lifetime: $40,000. But suppose there was a place where a person could get emergency money for 1/3 to 1/2 of what it costs from all these other places. Suppose you could walk or take public transportation to a place that made such loans at cost, not for profit. Suppose the people working there would talk with you at the window, or sit down with you and, without judgment, help you understand and improve your financial situation and credit rating. Suppose they could help you - if you want - get to the point where you could get those bank-level interest rates.This isn't fantasy, and it isn't daydreaming.