If you don’t have a bank account — and millions of American’s don’t — how do you cash a check or pay a bill? Even if you do have a bank account, how do you get a small loan in an emergency? One survey showed that as many as 63 percent of Americans would be strapped to raise $500 if they needed it in a crisis.
This is where the predatory “payday loan” industry comes in.
The term for people with no bank accounts is “unbanked.” According to the 2013 FDIC National Survey of Unbanked and Underbanked Households, “7.7 percent (one in 13) of households in the United States were unbanked in 2013. This proportion represented nearly 9.6 million households.” On top of that, “20.0 percent of U.S. households (24.8 million) were underbanked in 2013, meaning that they had a bank account but also used alternative financial services (AFS) outside of the banking system.”
That is millions and millions of Americans who either do not have a bank account or otherwise have to use “alternative financial services,” such as payday lenders and check cashing services. A 2014 AlterNet article, “The New Financial Scam Driving Workers Deep Into Debt,” pointed out what this means: “If you can lure people into borrowing then you own them, sometimes literally — it’s a game as old as money itself….”
These are the very people who are poor credit risks and cannot get loans from the usual sources. So they often turn to “payday lenders.” Payday loans can have an interest rate up to 500 percent. They charge very high interest rates for short-term loans, often trapping people into a vicious debt spiral, borrowing to pay the interest on earlier borrowing while money for food and rent disappears. These lenders charge 15 percent or more for a two-week loan. That’s not 15 percent per year, that’s 15 percent for two weeks.
The combination of this huge portion of Americans living on the edge, and few lending sources available, the predatory payday loan industry was at one point said to have more payday loan…