Payday loans, or short-term, small-dollar loans, have become a $90 billion industry in the United States. Nearly 12 million Americans use these loans every year, serviced by 23,000 payday lenders in operation. But why are Americans willing to risk taking out loans with an average interest rate of 400% and as high as 1,900%? While payday loans are marketed as a convenient, short-term solution to individuals who need cash immediately, it perpetuates an endless cycle of risky borrowing. Nearly 80% of borrowers have to re-borrow weeks after taking out their initial payday loan, in what is considered a debt trap.
Payday loan companies target populations with higher-than-average poverty rates, lower income levels, lower education levels, and single-parents and minority groups. Over 30 million Americans are underbanked and unbanked, which means they have limited or no access to traditional banking services. They are forced to turn to alternative financial services, such as payday loans.
We need to put strict safeguards in place to protect potential borrowers. The structure, unexpected fees, high interest rates, and the cycle of debt created by payday loans are reason for government intervention and strong financial regulation. As with all forms of credit, we must guarantee that borrowers have exhausted all available options before taking on a payday loan to avoid taking on debt they cannot afford.
We also need to eliminate the ability to borrow across state lines, and create minimum time frames that loans can be required to be paid back.
I am committed to providing basic banking services through US post offices so underbanked or unbanked communities have better access to financial services. We should also explore enabling community centers, such as church groups, to provide microloans and set up credit unions. We need to provide better solutions to providing access to credit and mitigate the risk that individuals take out payday loans that can make them financially worse off than before.
Tackling the root causes of financial fragility that fuel the demand for payday loans is another step in the right direction. By implementing the Freedom Dividend, each American over 18 years old will receive $1,000 a month unconditionally, which will relieve financial anxiety and reduce the need to take out dangerous payday loans.
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Problems to be Solved
- Payday loans are risky and under-regulated.
- Many borrowers aren’t aware of other borrowing options available to them.
- Predatory lenders use payday loan to exploit those who need their paychecks most.
Millions of Americans are underbanked and rely upon payday lenders who charge extortionate rates. But every community has a post office. We should allow post offices to provide basic financial services as they do in other countries. Would help everyone.
- Properly regulate payday loans and other predatory lenders
- Make sure payday loans are only used as a borrower’s absolute last resort
- Provide better banking solutions in every community
As President, I will...
- Require all payday loan providers to inform their borrowers of all the details in the payday loan before all loan agreements.
- Federally make payday loan borrowing illegal across state-borders, including online lenders.
- Continue support of the Consumer Financial Protection Bureau (CFPB) rule that requires lenders to verify a borrower’s ability to repay before making a loan, prohibits more than three back-to-back loans to a borrower, and limits attempts by lenders to debit borrower’s checking or prepaid accounts for payment.
- Implement the Freedom Dividend which will be immune from garnishment.
- Enable the U.S. Postal Service to offer basic financial services at low rates in communities around the country.
- Support community centers, such as churches, to set up credit unions or provide microloans, checking and savings accounts, and personal loans.
- Follow Colorado’s model legislation that reduces permissible fees, extends the minimum of a loan to six months, and requires loans be repayable over time rather than all at once.