COVID-19 Financial Warning: Consumers and Banks Should Avoid Payday Loans
For the foreseeable future, “normal” life will be suspended indefinitely due to the global pandemic known as the coronavirus.
Record job cuts in March prompted the Labor Ministry to report that 10.4 million consumers lost their jobs and filed for unemployment compensation. As medical experts continue to monitor the virus, The New York Times has reported at least 214,461 known infections and at least 4,800 related deaths.
Beyond these statistics, countless more school and business closures, and a growing army of people working from home have also been directly affected by the virus.
Consumers young and old have died as the virus continues to spread across the country. Its viral wrath spawned hot spots in Seattle in the Pacific Northwest, New Orleans on the Gulf Coast, Detroit in the Midwest, and New York City, the country’s largest urban metropolis.
By focusing on the economic impacts of the crisis, people around the world are grappling with competing needs in their lives. When the cost of living exceeds the financial resources available, hard times bring difficult decisions about how to feed families, how to keep housing, how to run utilities, and a myriad of other day-to-day needs.
Despite a $ 2 trillion federal bailout passed with bipartisan support, $ 1,200 checks promised to taxpayers, along with an additional $ 500 per child will arrive too late for the first of April payments for bills such as mortgages and rents. Many leaders also warn that despite its size or the range of areas covered, the legislation was not sufficient.
In a March 27 House statement, Congresswoman Maxine Waters, chair of the House Financial Services Committee, warned her colleagues that their work was not yet complete.
“[I] must make it clear that the legislation is far from exhaustive and that there are problems it leaves unanswered and areas where it does not respond… The American people need help now and this bill represents a down payment on that relief, ”Waters said.
A similar reaction came from AARP CEO Jo Ann Jenkins.
“Older Americans are facing the double whammy of the health and economic consequences of the coronavirus, and many need immediate relief and continued help and support to cope with the pandemic,” Jenkins noted. “These needs will only grow in the weeks and months to come. “
What can really make the difference between success and failure in life is not just what leaders do, but also what they haven’t done when given the chance. . The recent legislative package was silent on interest rates, as well as the cancellation of federal student loans, negative credit reports or a ban on private evictions for late rent payments.
As the cost of living has risen faster and more than most consumer incomes for over a decade, the likelihood of a savings account large enough to cover household expenses for a month or more is slim. , or even zero.
The Consumer Financial Protection Bureau (CFPB), the agency responsible for protecting consumers from unscrupulous lenders, has been clearly under control. Instead of forceful and timely agency alerts via multimedia communications warning consumers of opportunistic scammers, CFPB has offered a modest tip sheet on how consumers – not the government – can protect themselves. Fortunately, as the viral saga unfolds, some news outlets are reporting on the potential harms of consumers turning to payday loans and auto loans.
A joint response from five federal officials – Board of Governors of the Federal Reserve System, Bureau of Consumer Financial Protection (CFPB), Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration (NCUA) and Office of the Comptroller of the Currency (OCC) – came on March 26 in a statement that encourages banks, savings and credit unions and credit unions to offer “responsible small loans” to consumers and small businesses during the pandemic.
According to regulators, “Responsible small dollar loans can play an important role in meeting the credit needs of customers due to temporary cash flow imbalances, unforeseen expenses or income disruptions during times of economic crisis or post recovery. sinister ”.
Without any specifics defining “reasonable small dollar loans,” the regulators’ statement could be an incentive to join the financial abuse of triple-digit lenders.
For black America and other communities of color, short-term predatory loans of $ 500 or less began decades ago, when payday storefronts and car titles made their home in our neighborhoods. Across the country. Loans that were marketed as quick fixes for millions of consumers turned into long-term financial nightmares that worsened debt with each renewal. In many cases, the interest paid on these loans was often double or triple the amount of the principal borrowed.
A coalition of civil and consumer rights organizations issued a joint statement warning of a possible increase in high-cost lending by the country’s deposit-taking institutions – banks, credit unions and savings and loans.
“This is the worst time for banks to give out predatory payday loans,” said Americans for Financial Reform Education Fund, Center for Responsible Lending, Leadership Conference for Civil and Human Rights, NAACP, National Consumer Law Center.
“During the last recession, a handful of banks issued ‘deposit advances’ that gave borrowers an average of 19 loans per year at over 200% annual interest,” the executives continued. “These bank payday loans have disproportionately harmed the financially vulnerable and seriously damaged the reputation of banks. Since 2013, when regulatory guidelines warned against this form of credit, banks have mostly stayed on the sidelines. We hope they will continue to do so because they do not want to repeat the mistakes of the past. “
Charlene Crowell is a senior member of the Center for Responsible Lending. She can be contacted at email@example.com.