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Conversation Starters

So much is written about the “predatory” nature of payday loans that it is often easy to dismiss the businesses that provide these loans. Who are they? Are they legitimate? Consider the Argus Leader article (found in the Related Links tab) that came out after the South Dakota vote on election day. Are all predatory lenders bad? Do they run viable businesses? Why or why not?

Joann Needleman says of payday loan users that, “these are a group of consumers – 30 to 40 million people who are under-banked or unbanked – who have no access to credit.” By taking away the payday loan option, she adds, “you are preventing them from using credit and having access to credit.” The payday loan argument has two sides. What are the advantages and disadvantages of payday loans? Does it make sense to outlaw them entirely, as some states have already done? Come up with several questions to research and explore and hash them out in a mock debate.

Storytelling is a powerful way to learn from the experiences of others. Do you know anyone who has taken out a payday loan? Please share your story with a partner and post it in the comments section of this article to continue the conversation.

Financial deregulation of the 1990s had a twin impact. One, it greased the wheels of our economy, which led to a decade of higher growth, lower inflation, greater home ownership, and technological ine time, it brought along massive unintended consequences. While the Global Financial Crisis is the one often talked about in that context, the lesser known and yet, an equally devastating outcome of deregulation was its throwing a lifeline to the then largely defunct payday lending industry. By last count, only 14 states have banned payday loans as of now.

Payday lending is usury. It systematically creates debt traps and ruins families and communities. Why is this happening in this day and age? Lack of alternative venues to obtain credit is seen as the principal reason behind it. The Consumer Financial Protection Bureau (CFPB) has drawn up rules on payday loans, but they are yet to be implemented. That being said, they are still not legislation and therefore devoid of enforcement teeth. Technology is clearly an option to disintermediate payday lenders, and there are signs of it happening, albeit gradually.

An equally important aspect in this context that gets little coverage is the acute need for financial literacy. People borrow from payday sharks because their knowledge of other sources of credit that may be available to them is severely limited. Above all, such desperate financing needs often arise in the first place because people do not know how to budget for expenses and save for a rainy day, however small their savings may turn out to be. My view is that financial literacy should be part of the core academic curriculum right from middle school. Armed with practical knowledge of finance, children, when they become adults, can then navigate the treacherous waters of the real world infinitely better. This, to my mind, is the permanent solution to end the predatory evil of payday lending.

The High School(KWHS) article, “Payday https://www.paydayloansohio.net/cities/harrison/ Loans and the Perils of Borrowing Fast Cash”, captures in a nutshell an issue that I deeply care about – the misuse, abuse, and manipulation of vulnerable sections of our society by some greedy, ruthless members of the financial services industry. On my part, I started a financial literacy program aimed at middle schoolers two years ago. It is housed in Harlem under my tennis program . Having learned a bit from running it, I recently pitched financial literacy as a startup idea at a Social Entrepreneurship competition. To my delight, my idea was selected for the top prize among twenty odd entries and I was awarded seed funding to develop my vision of spreading financial literacy among at-risk, inner-city youth.

Because of the high fees, some young people are looking for alternatives to using traditional payday loans when they need fast cash. Flint Yu, 18, a senior at Hightower High School in Houston, avoids using payday lenders to get advances against his paychecks, which he says he needs in order to make trades in his brokerage account. “I’d like to try to avoid those because I’ve heard those interest rates are crazy,” he notes.