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Predatory lenders make money from rising gas and food prices

New York (CNN Business)Yumekia, Legal Assistant to the Indianola Office of the Mississippi Judicial Center over the past few months Jones has appeared. An unusually large number of calls from people in desperate need of urgent financial support (a surge of about 400%).

Most people want to provide quick cash for future salaries without a credit check and avoid payday loans with interest rates above 500%. However, with food, fuel and rent prices skyrocketing, there are few options.

For predatory payday lenders, , however,,indicate happy days and good times to come.

"Low unemployment and inflation are generally for additional capital to manage unexpected spikes and costs while consumers make money to repay these loans. Means you may need a loan. ”17} Enova (ENVA)is MayInflation said it exceeded thequarterly earnings estimate by 7.7%.

Given that economic dynamics are at work, Fisher said his company was "significantly committed to demand in our marketing efforts" to attract new customers. He said he spent a lot. It was rewarded. He said about 44% of all loans were issued to new customers in the previous quarter.

The first increase in borrowers is due to US consumer inflation reaching its highest levels in more than 40 years, and Americansstruggling to put food on the table and gas in tanks. ..

Drive and work

The national average of 1 gallon of gasoline is, just below $ 5, 61% increase from last year. Jumps occur just as many employers require workers to return to face-to-face work. Meanwhile, the federal minimum wage remains at $ 7.25 per hour since 2009. Low-wage workers have to work about 14 hours to fill the tank.
Currently, about two-thirds of Americans live on salaries, andJune LendingClub surveyshows thatincome is less than $ 50,000. The number of workers has jumped to 82%.
The average credit score for low-income people in the United States is also declining.LendingClub data show thatearns less than $ 50,000 and about 40% of Americans living from paycheck to paycheck have a subprime credit score. Below 650, it will be difficult to obtain a loan through a traditional lender or qualify for additionalcredits. According to Experian, the average US credit score is 714,.

For these Americans, high-interest payday loans are still easily available. These small loans typically range between $ 100 and $ 1,000, and is available in more than half of all US states with little regulation. Proof of income and a bank account are all that most borrowers need to go out with cash on hand.

Current data to track the number of payday loans has not yet been released, but based on historical trends, borrowing is likely to increase, Pew's chief executive of the consumer finance project. Alex Horowitz said. "According to our research data, about 70% of payday loan borrowers use their loans primarily to deal with everyday costs and increased or fluctuating costs."

Debt Traps

These loans are often very expensive, but borrowers lack financial literacy to look for alternatives or other options. I don't think there is. Currently, there is no federal government cap on the maximum interest rate on small loans. Not all states allow them, and it is up to them to decide whether to implement their own caps.

In the 32 US statesthat allow payday loans, the average annual interest rate ranges from 200% in Minnesota to 664% in Texas.
Borrowers often have to borrow a second loan for an additional fee because they are often unable to repay the full amount of the loan in 2-4 weeks when it expires. It creates a cycle of debt that is difficult to break. Almost one in four payday loan recipientshave received additional loansnine or more times,discovered by the Consumer Finance Agency.
Studies show that black and Latin communities are disproportionately targeted by high-value loan providers. In Michigan, the average payday loan interest rate is 370%, and in areas where the population is more than a quarter of blacks and Latino Americans, there are 7.6 payday stores for every 100,000 people. According to the data provided by the Center for Responsible Lending, this is about 50% morethan in other areas.

High-value loan companies provide the services needed by low-income communities by issuing loans to Americans who refuse to provide services to traditional banks. It states that it will provide. They argue that high interest rates are needed due to the high risk of default. However, proponents of the consumer have stated that this is a false explanation.

Horowitz says seven major US banks, including Bank of America, Wells Fargo and Truist, have created a program that offers low-interest, low-value borrowing options. They plan to look at the bank's history, not the credit score, to determine who is eligible for a loan.

"There are 18 states and the District of Columbia that have banned payday loans and survived without these predatory lending products," said Nadine, senior policy adviser to the responsible lending center. Chabrier says. "There are low interest rates and low rates of fair and responsible lending products available and available to people."

Immediately after the Covid-19 pandemic struck the United States, the Consumer Finance Protection Agency said. We have abolished most of the 2017 rules that require lenders to assess a consumer's ability to repay loans. The rules said they would have wiped out much of the money they earned from borrowers who missed their loan payments. By abolishing some of the rules, the CFPB said it would guarantee "continuous availability of small loan products for consumers who demand them."

In a blog post,former CFPB director Dave Ueijo said, "There is a problem with the lender's business model that relies on consumer non-repayment," and is concerned about rule changes. Was announced. Their loan.

Buy Now and Pay After

Proponents are also generally much less regulated than payday loans, a new form of loan that has emerged in recent years. I'm worried about

Buy Now (BNPL) companies have grown their total market share between 200% and 350% over the last two years, according to the Responsible Lending Center. Companies such as Klarna and Zip are now partnering with Chevron and Texaco to allow Americans to fill tanks with water now and pay in installments over a six-week period.

BNPL customers tend to be Millennials and Gen Z, and according to a Harvard Kennedy School research fellow Marshall Lux survey, two-thirds of applicants are subprime mortgages. I'm a borrower.

These companies do not brand themselves as lenders. BNPL is a debit, not a credit, repayments are made automatically from the customer's bank account and there are no interest or fees.

In California, 91% of consumer loans made in 2020 are BNPL loans, and 24% of economically vulnerable BNPL recipients report difficulty in paying.

BNPL lenders are not required by law to determine the ability of a borrower to repay a loan. There are no restrictions on payment delays, account reopenings, or fee disclosures for denial of payments.

"I'm concerned if people are using such credit products for their basic needs," Chabrier said. She is worried that BNPL customers can open multiple loans at once, which can lead to the loss of trucks or the difficulty of paying off all of them.

"Many people buy now, pay later, and stack purchases through multiple vendors," Chabrier said. "It's really affordable for them because they don't underwrite and are considering whether they can pay for these items."

Klarna buys late fees Limited to 25% of. This is far from the 400% interest rate charged by payday loan lenders, but Chabrier sees this as a less serious symptom of a bigger problem.

"They continue this process of withdrawing money from low-income earners," she said. "If people weaken their purchasing power with wages, that would be even worse."

Returning to Mississippi, the country's poorest poverty, Jones slammed the needy caller. I had a hard time getting out of my hands and getting involved in a financial literacy program sponsored by a local bank. But she said it's difficult to fight so many payday lenders with huge advertising budgets. The state is primarily a low-income area or a community of colored races, with the highest concentration of per capita payday loan lenders.

Payday loan lenders are so popular in Mississippi that they outnumber McDonald's restaurants by more than 5 to 1.