Payday loans are marketed as temporary, affordable help for people who run into unexpected problems. The car breaks down. The refrigerator goes on the fritz.
But a new study by Pew Charitable Trusts belies that image and affirms what advocates of stricter payday lending laws have said all along: Borrowers are people who are struggling to meet everyday expenses, and the cost of payday loans often overwhelms them.
Last year, South Carolina enacted some safeguards against payday loans and the sky-high interest rates that they charge.
For example, a person can borrow $100 for two weeks and pay $15. That is an annual interest rate of about 400 percent. And it is often compounded because people can’t make the payment.
The legislation that passed was a move in the right direction, but it fell short of being the protection that borrowers need. In some states, payday lending has been eliminated altogether, because of its abuses.
This Pew study is a good reason to revisit the issue during the next session.
It will take some backbone. The industry is a powerful one, with strong legislative allies. Americans spend $7.4 billion a year on payday loans, including an average of $520 in interest per borrower.
Those loans are taken out for two weeks, but more often put borrowers in debt for five months, Pew said.
Some persuasive Pew findings:
¦ While the industry says people get payday loans because they have no alternatives, the study shows that most have several options that they could use if payday loans were not available.
¦ Most borrowers are employed, white, female and between 25 and 44 years of age. However, it is home renters, African Americans, those lacking a four-year college degree and earning less than $40,000 a year who use them disproportionately.
¦ Despite what the industry says, borrowers aren’t covering unexpected emergency needs. Sixty-nine percent are paying their light bill or rent.
¦ If payday loans were not available, 81 percent of borrowers reported they would cut back on other expenses instead, according to Pew interviews.
And what should be encouraging to the state’s political leaders: Regulations do work. Some say that cracking down on storefront lenders will only push people to get the same products on line. But Pew found that in states that restrict storefront lending, 95 percent of would-be borrowers elect not to use payday loans at all.
Payday lending typically is used by people who already are in financial trouble and who get into even deeper trouble.
Stricter regulations can, and should, be adopted to protect citizens of South Carolina from predatory lending practices.