Thursday, June 2, 2016

Payday Lenders- Why do they Exist?

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 The chairman of the US Democratic Party has come under fire recently for her supposed support for payday lenders in a wider discussion taking place around the industry. A "payday" loan is a short-term loan that is unsecured by any property of the borrower. While the borrower intends to pay back the loan as future paychecks come in, most borrowers are forced to roll the debt over into additional loans, resulting in additional fees and ever-increasing debt. Annual percentage rates average 339 percent (meaning consumers end up paying more than 3.3x more than the original amount of the loan, if they ever pay it off).

The Consumer Financial Protection Bureau- part of the US federal government- has come under fire for newly proposed rules that would force lenders to verify borrower's incomes and limit the amount of additional loans people can take out. Industry proponents argue this would hurt profits and deny many people who rely on these loans for emergencies a financial lifeline.

It's true that millions of Americans rely upon these payday loans in emergencies. And at least some of the 16,000 payday lenders that exist probably charge too-high interest rates.

But, the real problem lies beneath the surface. Something is quite wrong if millions of people are forced to turn to these loans to make ends meet.

If we implemented a living income guaranteed, nobody would have to take out loans at hundreds of percent interest. We can as a society decide that no person should ever fall below the income required to take care of their basic needs.

Imagine if the $7 billion in fees payday loan companies make in a year were directed elsewhere in the economy. For example, going to support peoples' health and education. Imagine if nobody had to choose between having their power/water shut off or taking out a loan at 390 percent interest. Perhaps property crime would drop if people were not faced with the desperate situation of having to find money to eat (or pay off loans) or to go hungry (or face additional debt). 

Maybe you can think of additional benefits.

If supporting a solution to end poverty and harmful payday loans interest you, research a Living Income Guaranteed Proposal.

See also: 
Living Income Guaranteed  
Living Income- Wordpress
Equal Money


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