Questions about Payday Loans we Should Have Asked
1. Why are September and December the busiest months for payday lending (1)?
The most likely reason September is a busy month for payday lenders is because it’s back to school season. Payday borrowing is probably dominated by proud parents who want to send their children to school in new clothes with adequate school supplies. These parents probably know that the earned income tax credit they receive in January will allow them to pay off their loan.
Similarly, December represents the holiday season. Someone living paycheck to paycheck who wants to give gifts to family members knows that they’re likely to get money back on their taxes too. A payday loan taken in December is easily paid back in January when their tax refund arrives.
2. Why do people take out an average of 8 loans?
From September to January is exactly 16 weeks. A payday loan’s period is 14 days or two weeks. That means if you take out a loan in early September and pay it back with your tax refund in January you’d have gone through 8 payday loans.
3. Why does the payday loan business exist?
The business exists because a segment of the population widely considered to be un-creditworthy actually is creditworthy. These are people who either collect social security, or get large tax refunds, or receive the earned income tax credit. The payday loan business has found a way to capitalize on these forms of social assistance.
4. Has payday lending affected Rhode Island’s economy?
It is safe to say that since 2001 when payday lending became legal in Rhode Island, our state has seen a dramatic decline in wealth. In 2001 there were 69,711 Rhode Islanders on food stamps (2). In 2010 this number had more than doubled to 155,184 (3). According to the most recent census data almost one quarter of Rhode Island households use food stamps to make up for nutrition shortfalls (4). It is impossible to directly connect this rise in food stamps to payday lending, however it is safe to say that Rhode Island is becoming increasingly poor. Payday lenders take money out of Rhode Island’s economy; Advance America is a Mexican company (5), and Check n’ Go is based in Cincinnati, Ohio (6). Therefore it is safe to conclude that payday lenders are not helping increase the wealth of Rhode Islanders.
(1) Rivlin, G. Broke, USA 2010, New York, Harper Collins p. 265