July 9th, 2010

Can you believe that any lender would charge 400 percent interest for a loan? Who would pay that – and why? These questions came to mind after I attended a Payday Lending Reform Coalition Meeting last month.

To learn more about what author Gary Rivlin calls “the $33 billion a year poverty industry,” I picked up his book Broke USA – From Pawnshops to Poverty, Inc: How the Working Poor Became Big Business.

The author describes a perfect storm in which stagnant wages and rising living expenses make payday loans deceptively convenient. Rivlin spoke about his book on the NPR program Fresh Air last month.Listen to the full interview here. One excerpt:

On why payday loan operations exist in poorer neighborhoods:

“[Payday loan operations] are there because banks have fled certain neighborhoods — it’s working-class neighborhoods, inner-city neighborhoods, some rural neighborhoods. Where can you get your loan? You go to a payday lender, you go to a consumer finance shop [or] you go to a pawnbroker. To me, the real reason payday has grown like it has is more of an economic reason than a geographic reason. There’s been stagnating wages among the lowest 40 percent [of wage earners] in this country, and so they’re not earning anymore real dollars. At the same time, rent is going up, health care is going up [and] other expenses are going up, and it just becomes harder and harder and harder for these people who are making $20,000 [or] $25,000 [or] $30,000 a year to make ends meet. And the pay lenders are really convenient. Between going home from work and going shopping, you can stop at one of these stores and get instant cash in five minutes.”

Posted by Robyn Hyden