Payday Loan Use and Consumer Well-Being: What Consumers and Social Workers Need to Know About Payday Loans

Lim, Younghee; Bickham, Trey; Dinecola, Cassie M.; Broussard, Julia; Weber, Brittany E.; Gregory, Alethia

doi:10.1080/10875549.2014.951906

Cited by 18 publications

(10 citation statements)

References 37 publications

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“…Their balloon repayment structure makes it difficult for borrowers to repay their loans and encourages repeated loan renewal. As a result, lending fees accumulate quickly and risk trapping borrowers in a cycle of rapidly increasing debt (Lim et al ; Martin ; Montezemolo ).…”

Section: Predatory Inclusion In Consumer Credit Marketsmentioning

confidence: 99%

Predatory Inclusion in Consumer Credit: Explaining Black and White Disparities in Payday Loan Use

Charron‐Chénier

2020

Sociological Forum

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Payday loans are a high-cost form of credit, yet they remain a popular financial tool used by a significant proportion of Americans. Use of these loans varies significantly across social groups. Black households in particular are more than twice as likely to use payday lending as white households. Explanations for households' decision to use payday loans remain disputed. Some scholars argue that poor financial literacy is a major driver of payday borrowing. Others propose instead that payday loans are a form of credit of last resort used after depleting higher quality sources of credit. In this article, I argue these explanations are incomplete and miss the racialized nature of payday lending. Payday lending is a form of predatory inclusion: it provides households experiencing exclusion from consumer credit markets with a needed source of credit but under conditions that jeopardize long-term benefits of access. Given historical and contemporary patterns of financial exclusion, this process entails disproportionate reliance on payday lending by black households. Models using data from the Survey of Consumer Finances provide support for both the predatory inclusion and the credit exhaustion explanations. Predatory inclusion, however, explains the largest portion of racial disparities in payday loan use.

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Section: Predatory Inclusion In Consumer Credit Marketsmentioning

confidence: 99%

Predatory Inclusion in Consumer Credit: Explaining Black and White Disparities in Payday Loan Use

Charron‐Chénier

2020

Sociological Forum

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“…Higher rates of alternative financial service use are documented among people earning less than $40,000, people without a bachelor’s degree, people of color, young people, those living with a partner, parents, and renters (Birkenmaier & Fu, 2016; Pew Charitable Trusts, 2012). Lenders claim that their services assist financially fragile individuals and families in meeting their short-term credit needs, however, research documents that these loans contribute to borrowers’ greater economic vulnerability (Lim et al, 2014; Pew Charitable Trusts, 2013). Research shows that over 80% of payday loans are rolled over or reborrowed within 30 days because the borrower cannot afford to repay the loan (Consumer Financial Protection Bureau (CFPB), 2016).…”

Section: “Alternative” Financial Services: Where Exclusion Meets Expl...mentioning

confidence: 99%

“…Research shows that over 80% of payday loans are rolled over or reborrowed within 30 days because the borrower cannot afford to repay the loan (Consumer Financial Protection Bureau (CFPB), 2016). High interest rates and fees further deepen economic hardship by damaging credit ratings and trapping individuals and families in a cycle of debt (Lim et al, 2014).…”

Section: “Alternative” Financial Services: Where Exclusion Meets Expl...mentioning

confidence: 99%

The high price of economic marginalization: Low-income Latinas’ experiences with mainstream banking and alternative financial services.

Bullock¹,

Toolis²,

Sencion³

et al. 2020

Peace and Conflict: Journal of Peace Psychology

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Economic exclusion takes many forms including lack of access to financial services. Rates of being underbanked or unbanked are higher in low-income communities and communities of color than affluent, predominantly White neighborhoods. “Alternative” or “predatory” lenders, which charge exorbitant fees, fill “gaps” in services by providing convenient but costly services. We report findings from a community-university research partnership investigating 108 low-income Latinx mothers’ use of alternative lending services (e.g., payday loans, money transfer services), the impact of these services on individuals and families, and barriers and facilitators of mainstream banking use. The majority of respondents had bank accounts but remained underbanked. Frequently cited barriers to mainstream financial services included fees and unexpected charges, uncertainty regarding interest rates, lack of a Social Security number, needing cash quickly, perceived discriminatory treatment, and fear of deportation due to undocumented status. Alternative financial service (e.g., check cashing, cash advance loans) use was widespread as was difficulty repaying these loans. Relational support emerged as an important protective factor against the most exploitative providers. We draw on these and other findings to illustrate how low-income Latinx mothers perceive, experience, and resist predatory lending services. Recommendations for reducing Latinas’ economic exclusion and strengthening financial capabilities are offered.

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“…21 Using fringe loans for recurring expenses can be especially harmful, leading to spiraling debt and bankruptcy. 24 Moreover, fringe lenders often provide misleading information about loan contract terms, causing borrowers to underestimate the true costs of the loan and overestimate their ability to repay the debt. 10 Nonetheless, the poor often lack options, 8 and for certain borrowers-particularly those borrowing sparingly in states with APR limits-fringe loans may be the least costly option.…”

mentioning

confidence: 99%

“…10 Nonetheless, the poor often lack options, 8 and for certain borrowers-particularly those borrowing sparingly in states with APR limits-fringe loans may be the least costly option. 24 The material consequences of fringe loans aside, borrowers' health may be harmed by the stress of excessive debt and accompanying finan-cial instability. Indebtedness is often a source of shame, 7 and fringe debt may be especially stigmatized.…”

mentioning

confidence: 99%

From Payday Loans To Pawnshops: Fringe Banking, The Unbanked, And Health

et al. 2018

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The fringe banking industry, including payday lenders and check cashers, was nearly nonexistent three decades ago. Today it generates tens of billions of dollars in annual revenue. The industry's growth accelerated in the 1980s with financial deregulation and the working class's declining resources. With Current Population Survey data, we used propensity score matching to investigate the relationship between fringe loan use, unbanked status, and self-rated health, hypothesizing that the material and stress effects of exposure to these financial services would be harmful to health. We found that fringe loan use was associated with 38 percent higher prevalence of poor or fair health, while being unbanked (not having one's own bank account) was associated with 17 percent higher prevalence. Although a variety of policies could mitigate the health consequences of these exposures, expanding social welfare programs and labor protections would address the root causes of the use of fringe services and advance health equity.

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Payday Loan Use and Consumer Well-Being: What Consumers and Social Workers Need to Know About Payday Loans

Cited by 18 publications

References 37 publications

Predatory Inclusion in Consumer Credit: Explaining Black and White Disparities in Payday Loan Use

Predatory Inclusion in Consumer Credit: Explaining Black and White Disparities in Payday Loan Use

The high price of economic marginalization: Low-income Latinas’ experiences with mainstream banking and alternative financial services.

From Payday Loans To Pawnshops: Fringe Banking, The Unbanked, And Health

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