For Djuan, it all began when he left his job at the Los Angeles Film School to go take care of his ailing mother in Wichita, Kansas. When she died last March, he had no job or income, and the bills were piling up. That’s when he turned to a payday lender for help.
“I knew payday lenders were terrible,” he said in an interview with OurFuture.org. “But I didn’t want to have to ask my family.”
Djuan, who asked that his last name not be used, was one in 12 million Americans who took out a payday loan in 2014. Payday loans, officially known as “cash advance loans,” are advertised as a way ”to help a borrower's unexpected expenses such as bill payments, car repairs, household emergency repairs or other financial emergencies.“ In reality, seven in 10 borrowers were like Djuan and weren’t covering for a crisis; they just needed money to get by for the next two weeks. “I needed it for basic living expenses, water, gas, electricity,” he said.
What Djuan received was officially an installment loan, though it bears little resemblance to the ordinary loans most of us are familiar with. In all aspects, it is closer to a payday loan that gets rolled over multiple times. These types of additions are often used to circumvent regulations targeting payday lenders. For Djuan, the installments were weekly with interest rates of “about 4 percent a day” plus fees. When he could no longer pay the interest, he “called and tried to get something worked out.” At that point, he said he “owed $1,000 in fees and interest, even though I paid off the $500.”
“They sued me in small claims court” Djuan said. He has a job now in Wichita, but now he is worried that a pending decision could lead to the lender garnishing his wages or sending the debt to a collection agency that could press criminal charges if he doesn’t pay.
Djuan said that if he knew then what he knows now, “I would have looked for other options, asked my family for help.”
The argument against criminalizing payday loans and their ilk, such as predatory installment and car title loans, stems from a simple premise: When people are in desperate need for money, they willingly choose payday lenders because they fulfill that need. Djuan acknowledges some people don’t have options, but says nonetheless these kinds of loans “should most certainly be illegal.”
Djuan asks an important question in response to the "choice" argument: “Why would people choose something that leaves them worse off?”
He has a point: While the average payday loan is $375, the average borrower ends up paying off $520 in interest alone, not to mention fees.
Because of our failure to raise wages in this country, many Americans like Djuan are looking for ways to cover basic expenses as well as unexpected crises. The least we can do is make sure that whatever they have to do to make ends meet, it does not trap them in an inescapable cycle of debt.
The Consumer Financial Protection Bureau is expected to take steps this fall to crack down on payday-style lenders who profit from trapping their customers in debt, and you can encourage tough regulations by signing this National People's Action petition. But while the CFPB can make regulations to clean up the lending industry, it is ultimately up to Congress and the states to pass laws that help ensure that there are always safe, affordable places for people to get credit when they need it.