We must crack down on payday loans – for the sake of our health | Mary o’hara
VSexhausting expensive and predatory loans is not only desirable, it is imperative. It’s hard enough being poor and paying a poverty premium on utilities and other basic necessities, let alone not being able to get cheaper credit that wealthy people take for granted. As the Institute for Fiscal Studies pointed out in January, debt problems tend to be more persistent among the poorest people, with 40% of one-fifth of the poorest households in arrears or spending more. ‘a third of their income to repay their debts between 2010 and 2012 still do so two years later.
Although there have been improvements in regulations, such as capping the overall cost of payday loans, high cost credit remains a serious problem. In the United States, it’s not uncommon for someone caught in the debt cycle to renew what are supposed to be short-term payday loans for months, paying about a third of their paycheck on monthly repayments. and pay a lot more. in fees and expenses than the initial loan amount.
The combination of problematic debt and government austerity policies means it’s no surprise that child poverty is at its highest level since 2010 and that 30% of UK children are now classified as poor ( two thirds of which come from working families). Research by the Financial Conduct Authority has found that 4.1 million people in the UK are already experiencing serious financial difficulties, falling behind on bills and credit card payments. Whether it’s debt counseling agencies that see the fallout on their front doors pushing for reforms every day, or politicians like Stella Creasy, who has campaigned for years against the high cost of loans on salary and which now engages in a high cost credit. cards, the devastating impact of problematic debt is gaining ground in political and public consciousness.
Last month, actor and activist Michael Sheen said he was stepping back from action to focus on tackling high-cost credit, and officially launched the Alliance for High-Cost Credit, a coalition of charities and responsible credit organizations that he founded in 2017 to campaign for fairer credit. sources of borrowing.
The need for cheaper credit for everyone is not only a matter of fairness and convenience, it could also be good for people’s health. A new report from a health education charity, the Royal Society for Public Health, found, for example, that payday loans had the most negative impact on their mental health.
Abusive and expensive loans are closely linked to increased poverty and inequality. Evidence indicates that this can be a financial, health and psychological burden. In the United States, where the Pew Charitable Trusts estimates that payday loans are used by 12 million Americans per year (with many more resorting to other forms of high-cost credit), the impact on the financial and general well-being of vulnerable families has been well documented. Recent research in the United States, for example, found that people who use high-interest short-term loans are 38% more likely to report poorer health.
Some states are already fighting back: Payday loans are banned in Washington DC and 15 states, while states like Colorado have tightened regulations. Joe Valenti, director of consumer finance at the Center for American Progress, points out that voters tend to be pro-reform and have helped regulate within individual states. Nationally, he argues that when the Federal Bureau of Consumer Financial Protection (CFPB), created in the wake of the financial crisis, issued what is called a “final rule” governing payday loans and similar products in October 2017, introducing protections such as the requirement that lenders verify borrowers’ ability to pay was a big step forward.
But all of that could be overturned if a bill submitted to Congress passes. This would stall progress and reverse the state’s efforts to tightly regulate payday loan fees.
And at the end of the day, if we are serious about tackling problematic debt, we need to make sure people don’t have to use payday loans or sky-high credit cards just to get by. With soaring inequality and dwindling social safety nets in the US and UK, this doesn’t seem likely to happen anytime soon.