I’m sure you read the title of this post and thought: What. The. Hell.
How, you’re probably thinking, could a personal finance blogger have “conflicted” feelings about payday loans? Payday loans are the worst of the worst in terms financing options. Interest rates are sky-high, the loan terms are terrible, and payday lenders prey on the poor and uneducated. In other words, there’s nothing to feel “conflicted” about – payday loans suck, payday lenders are scum, and the government should be much more heavily regulating the industry.
If that’s what you were thinking, you’re totally correct, at least in my opinion. Payday loans do suck, payday lenders are scum, and the government should be much more heavily regulating the industry. If you’re unfamiliar with the nature of payday loans and lenders, this is a great resource, but here’s the quick and dirty: payday loans are extremely short-term loans (usually around a month) for relatively small amounts of money (usually under $500). The idea is that this is money that will hold the borrower over until his or her next payday. These loans turn the borrowed amount over immediately and do not require a credit check to acquire. Interest rates are very high – annually over 300% – and borrowers are likely to end up getting trapped in a cycle of borrowing, not being able to repay, and having to borrow more.
All of this is terrible, bad, horrible stuff. I literally can’t imagine a loan with worse terms and conditions than a payday loan. In fact, I can’t think of one positive thing to say about payday loans.
Something about the way that payday borrowers are described just rubs me the wrong way. People who take out payday loans are often described as “victims” of “predatory lending.” Payday lenders are accused of of “exploiting” poor, uneducated, and, therefore, vulnerable borrowers. I can’t help but get the sense that the implication behind these descriptions is that poor people are stupid. As if, somehow, people who are poor are too unintelligent to understand that a 300% annual interest rate is a bad deal. Certainly, payday lenders exploit the desperation that some poor American feel when faced with financial hardships. But we’re all more likely to make less-than-great financial decisions when we’re feeling stressed, and this nuance is never pointed out. The message, to my ears, is that poor people are somehow totally incapable of making proper financial decisions, so we should make payday loans harder to get or unavailable altogether. This, of course, is opposed to the idea that people who take out payday loans understand the terms and accept the risk inherent in borrowing from questionable lenders because they have no other option for obtaining funds in an emergency. That is, isn’t it possible that it’s not stupidity that leads people to borrowing from a payday lender? Couldn’t extremely dire circumstances be an equally legitimate motivation?
This speaks, once again, to a larger issue in American society in terms of our attitudes towards the poor, which is essentially that poor people are poor because they are lazy, unintelligent, or incapable of making good financial choices. This attitude is so deeply ingrained in our individualistic, personal responsibility-oriented culture that even suggesting that payday loans should remain easily available seems ridiculous. I never cease to be amazed that Americans are so lacking in social awareness and cultural sensitivity that many can’t see that forces beyond just personal habits can contribute to keeping the poor poor and the rich rich, and the messages surrounding payday loans provide a perfect example of this.
Again, I’m not speaking in favor of payday loans in any way. I even have a disclaimer on my advertising page about how I will never, ever, EVER advertise for a payday loan on my site. But I think it’s important to dig deep into the subtext of some of the messages that get bandied about – it’s an opportunity to examine our real feelings about real issues.
So what do you think about payday loans? Am I totally off-base here? Should payday loans be made harder to obtain, or outlawed all together? Tell me what you really think!