Sharks have a bad reputation.
Do not mistake yourself. It is absolutely tragic every time a swimmer or surfer is bitten or killed.
But sharks only do what comes naturally. They are “top predators”, which means they are at the top of the food chain. When a shark hunts for prey, it’s not personal.
Yet here’s one way Merriam-Webster defines a different kind of shark: “A cunning, rapacious person who takes advantage of others. ”
I see payday lenders in this sense. They see a group of people struggling financially and doing what comes naturally to them. They hunt.
Right now, supporters and opponents of payday loans are clashing, waiting for the Consumer Financial Protection Bureau to release proposed rules affecting these and other short-term borrowings, such as auto title loans. .
The watchdog has said it wants to require payday lenders to make sure borrowers can afford to repay their loans.
This simple mission has the lenders and their supporters, including many members of Congress, in arms. It will crush the industry, they say. Lenders only provide a service that people want and need, they say.
If you don’t know how payday loans work, great for you. It is a financial product from which I advise you to stay away.
These loans are relatively small and are supposed to be repaid on a person’s next paycheck, usually within a few weeks. The loan qualifications are not difficult. You must have a bank account and income. Borrowers can provide lenders with post-dated checks or authorize electronic withdrawal of funds.
Many people see payday loans as a temporary financial solution. Borrowers think they just need a little extra time to get out of this mess.
But often that’s not what happens.
“Payday consumers can go into debt when they can’t afford to pay off their initial loan,” said Jen Howard, CFPB director of communications. “Many take additional loans, pay more fees and interest to end up with the same debt.”
This month, the head of a group of payday lending companies was charged with federal racketeering charges. Authorities charged the Pennsylvania man with violating anti-usury laws, charging more than 700% on payday loans. According to the indictment, he and another accused raked in more than $ 688 million in revenue over five years.
In areas where there are sightings or attacks of sharks, precautions are necessary. This is the case with payday loans.
George Burgess, a biologist at the Florida Museum of Natural History who investigates shark attacks, wrote a blog post providing a number of tips for reducing the chances of being a victim of a shark attack in water. I adopted them to fit this payday loan debate.
Always swim in a group. Sharks most often attack single individuals, Burgess wrote. We should therefore applaud the CFPB for its efforts to protect a large number of people who may not even know they are in danger.
Avoid water at dawn, dusk or at night. It is in your darkest financial days that you might see a payday loan as a lifeline. But a typical loan payment takes 36% of the borrower’s salary, according to the Pew Charitable Trusts.
Do not enter the water if you are bleeding. Sharks can smell blood. Payday loan is an opportunistic business with a profit model that draws more money from those caught in the cycle of repeated borrowing. Fees, when annualized, can reach three-digit or higher interest rates.
Don’t splash a lot. Payday loans are for people in financial panic. These people are dabbling around in search of relief, but debt can sink them even deeper.
Don’t touch a shark. Avoid payday loans. If you can’t cover an expense now, how will pledging future income that you might need later help you?
In the event of a shark attack, the general rule is “Do whatever it takes to get away!” Pew Research reveals that 12 million Americans take out payday loans each year, paying $ 7 billion in fees.
I have met many payday borrowers. They tell stories of ruthless debt cycles. We must do whatever it takes to protect others from the same gruesome fate. It’s not personal for payday lenders, but it should be for us.
Write Singletary to the Washington Post, 1301 K St. NW, Washington, DC 20071 or [email protected] Comments can be used in a future column, with the author’s name, unless requested otherwise. To find out more, visit http://wapo.st/michelle-singletary.