FORT WORTH (CBSDFW.COM) – As millions of Americans struggle to pay bills, various payday lenders are offering relief in the form of quick cash.
But these deals could end up costing long-term borrowers much more.
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Consumer advocates say these loans look even more attractive to vulnerable customers in light of the economic impact of the COVID-19 pandemic.
“We know they’re advertising to people during this financial crisis,” said Yasmin Farahi, senior policy adviser at the Center for Responsible Lending.
Farahi referred to recent claims made by various companies in the wake of the pandemic.
“Worried about the coronavirus? Title loans could give you relief,” reads a blog post on the Texas Car Title & Payday Loan website. “If you’re already living paycheck to paycheck… then you might want to think about infusing your income with a title loan. Getting a title loan in Texas can give you a sense of relief and the money you need, especially during this time.
On its website, Advance America proclaims, “We’re here to help before or after your stimulus check arrives.”
Texas Car Title & Payday Loan and Advance America did not respond to requests for comment in time.
Farahi said that in Texas, payday loans carry an average interest rate of 600%.
“Although it’s marketed as a quick financial fix, it leads to debt traps,” said Farahi, who advised consumers to choose other forms of credit.
But proponents of small loans argue that people need these loans now more than ever.
“In these uncertain times, it is more important than ever that Americans have access to approved and regulated forms of credit,” said D. Lynn DeVault, president of the Community Financial Services Association of America. “That’s why small lenders are considered essential businesses so that we can continue to serve our communities during the pandemic – as we have for decades.”
CFSAA is the trade group that represents small lenders.
DeVault added that the industry has actually seen a drop in lending volumes during the pandemic.
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“Many of our clients are repaying loans, many are saving, and many have reduced spending, therefore choosing not to pursue loans,” DeVault wrote. “However, ACSA member companies are working in every way possible to meet the needs of customers using our products and services during the COVID-19 pandemic, including offering flexible reimbursement terms.”
Statistics on the number of people who have turned to payday lenders during the pandemic are currently unavailable, according to Ann Baddour, director of the Fair Financial Services Project with Texas Appleseed.
But Baddour said rising unemployment could play a role.
“People aren’t using these products as much right now,” Baddour said. “With so many people out of work, it may mean they don’t even qualify.”
Baddour advised qualified people to think twice.
Due to fees and interest rates, consumers could end up paying three times what they originally borrowed.
“It’s important to look at your finances and be very realistic about your ability to repay,” Baddour said.
Instead of payday lenders, Baddour said consumers should seek help from organizations such as CitySquare, United Way of Metropolitan Dallas or Catholic Charities.
In a recent memo, the Office of the Consumer Credit Commissioner of Texas urged access to credit companies to work with borrowers and be “practical, flexible, and empathetic.”
The state asked entities to consider waiving late fees, research deferred payment plans that would avoid negative credit reports, and suspend autofills, among other suggestions.
Some lenders, like ACE Cash Express, said they helped customers during the crisis.
A spokesperson released the following statement:
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“Since the onset of the COVID 19 crisis, at ACE Cash Express, we have worked with our lending clients who are impacted by the pandemic through the suspension of payment obligations and collection activity, the waiver of late and NSF charges, and the prevention of derogatory reports to credit bureaus, among others. We will continue to work with our customers in this manner. If used responsibly, short-term loans are a reasonable source liquidity for those who do not have access to traditional credit.However, applicants must provide proof of income and repayment capacity, therefore the demand for these loans has decreased significantly in the current environment.