Sharks have a bad reputation.
Do not mistake yourself. It is absolutely tragic every time a swimmer or surfer is bitten or killed.
But sharks only do what comes naturally to them. They are “apex predators”, which means they are at the top of the food chain. When a shark hunts prey, it’s not personal.
Yet here’s one way Merriam-Webster defines another type of shark: “A cunning, rapacious person who takes advantage of others.”
I see payday lenders in this sense. They see a group of people struggling financially and do what comes naturally to them. They hunt.
Right now, proponents and opponents of payday loans are squaring off, waiting for the Consumer Financial Protection Bureau to release proposed rules affecting payday loans and other short-term borrowing, such as securities loans. automobiles.
The watchdog said it wants to require payday lenders to ensure borrowers have the means to repay their loans.
This simple mission has lenders and their supporters, many in Congress, up in arms. It will crush the industry, they say. Lenders are just providing a service people want and need, they argue.
If you don’t know how payday loans work, good for you. It is a financial product that I would advise you to stay away from.
These loans are relatively small and are supposed to be repaid on a person’s next paycheck, usually within a few weeks. The loan conditions are not difficult. You must have a bank account and income. Borrowers can give lenders post-dated checks or authorize an electronic withdrawal of funds.
Many people see payday loans as a temporary financial solution. Borrowers think they just need a little more time to get out of trouble.
But often that’s not what happens.
“Payday consumers can find themselves stuck in debt when they can’t afford to repay their original loan,” said Jen Howard, CFPB’s director of communications. “Many take out additional loans, paying more fees and interest to end up with the same debt.”
This month, the head of a group of payday loan companies was indicted on federal racketeering charges. Authorities accused the Pennsylvania man of violating anti-usury laws, charging more than 700% on payday loans. According to the indictment, he and another defendant earned more than $688 million in revenue over five years.
In areas where there are shark sightings or attacks, precautions are necessary. This is the case with payday loans.
George Burgess, a biologist at the Florida Museum of Natural History who investigates shark attacks, wrote a blog post providing a number of tips to reduce your chances of being the victim of a shark attack in the water. I adopted them to fit this payday loan debate.
Always swim in a group. Sharks most often attack single individuals, Burgess wrote. We should therefore applaud the CFPB for its efforts to protect a wide range of people who may not even know they are in danger.
Avoid water at dawn, dusk or night. It’s in your darkest financial days that you might see a payday loan as a lifeline. But a typical loan payment is 36% of the borrower’s salary, according to the Pew Charitable Trusts.
Do not enter the water if you are bleeding. Sharks can smell blood. Payday loans are an opportunistic business with a profit model that extracts more money from those caught in the cycle of repeat borrowing. Fees, when annualized, can reach triple digit interest rates or more.
Doesn’t splash much. Payday loans are for people in financial panic. These people dabble, looking for relief, but debt can sink them even deeper.
Don’t touch a shark. Avoid payday loans. If you can’t cover an expense now, how will pledging future income that you’re likely to need later help you?
In the event of a shark attack, the general rule is “Do whatever it takes to get away!” Pew research reveals that 12 million Americans take out payday loans each year, paying $7 billion in fees.
I have met many payday borrowers. They tell stories of ruthless debt cycles. We must do whatever it takes to protect others from the same gruesome fate. It’s not personal to the payday lenders, but it should be ours.
Write Singletary at The Washington Post, 1301 K St. NW, Washington, DC 20071 or [email protected] Comments may be used in a future column, along with the author’s name, unless otherwise requested. To find out more, visit http://wapo.st/michelle-singletary.