There was a moment in my life where it felt as if everything that could go wrong went wrong — and all at the same time.
I had just started a new job. My household went from two incomes to just one, and we were definitely starting to feel it. The mortgage was due, all of the regular household bills and responsibilities were still there, and my son still needed money to cover school and sports expenses.
I managed to use the remainder of my savings to pay everything, but I was still $500 short for my mortgage payment. I was stressed out, trying my best to make ends meet and keep some normalcy in my son’s life. I knew I had a paycheck coming, but it would not arrive in time to avoid all of the late fees and the credit hit for being 30 days late on my mortgage.
I reached out to my bank to see if I could get a small loan and was denied due to not having a high enough credit score. I had one credit card with a very small limit, but it was pretty much maxed out, so I couldn’t take out a cash advance.
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I also didn’t want to borrow money from my friends and family because that would be admitting all was not well in my household. Also, I had no desire to answer the many questions that would come if I asked to borrow that much money.
While driving my mom to one of her doctor’s appointments, I saw a large green sign that seemed to be the answer to my problems: Fast cash now, no credit checks, walk out with up to $500 today.
It seemed worth exploring so I went in and asked what was needed. I was told all I needed was an active checking account, a copy of my bank statement, and proof of employment. I could get all those things with no problems.
After retrieving the necessary items, I went back, filled out the application, signed on the dotted line, and walked out of the door with $500 cash in my hand about 30 minutes later.
I felt as though my problems had been solved. I had the amount necessary to finish covering that month’s necessary expenses. I had a paycheck coming and I would be able to cover the payment on the loan. Crisis over, right?
That feeling lasted all of two weeks. I quickly realized that although I had a paycheck coming, my household’s financial situation was the same. We were still solely depending on my income, and the amount of our bills covering essentials hadn’t changed. So not only did I still have to continue paying for those things, now I had a loan payment to cover as well.
I had actually added to the expense pile.
Recently, the Consumer Financial Protection Bureau — which is supposed to be the nation’s consumer watchdog — proposed removing a rule that would require lenders of payday, car title, and other high-cost installment loans to verify the borrower’s ability to pay back the loan. This is something every other lending institution does, engaging in credit checks, verifying income, and assessing if the borrower can actually pay. My experience, and those of others I’ve spoken with, shows why such a rule is so key.
When my paycheck hit the bank, the payday loan people were right there to take their cut. I managed what was left of my check and paid my bills. I needed to get this loan paid as soon as possible.
In order to pay the loan back quickly and not fall behind any of my regular expenses, I picked up a temporary second job. This meant less time at home being an engaged parent to my son, and I constantly felt tired and drained. I feel as though I missed a chunk of my and my son’s life working seven days a week and only being at home to sleep.
Granted, I could have gotten a second loan or rolled the first loan over, meaning paying an additional fee to delay paying back the original loan. I did not consider this option because it would not solve the problem. If the first loan was causing a strain on my finances, I definitely didn’t need to add to the debt. I just wanted to be done with it as quickly as possible.
Fortunately, I paid back my loan before the due date to avoid the additional interest and fees. I avoided the devastation that many others have experienced as the result of taking out these loans.
In the 2018 election, Colorado passed Proposition 111, which put a 36 percent cap on the amount of interest and fees that payday lenders can charge borrowers. While working on the campaign for Proposition 111, I talked with others who had taken out multiple payday loans to assist with covering living expenses. In 2016, Colorado payday loan customers paid an average interest rate of 129 percent, costing them $119 in interest and fees. Nationally, more than 75 percent of payday loan fees come from borrowers who use 10 or more loans per year.
Doing the math, I discovered that I paid approximately 118 percent on that $500 loan. Had I realized that the interest and fees added to this amount, I would not have taken out this loan. I would have tried to negotiate and make payment arrangements, especially because my situation was temporary.
Most of the people I spoke with during the campaign were not able to pay their loans back and the results were devastating: Closed bank accounts because payday lenders continue to run checks through the account many times, resulting in ridiculous overdraft fees. Embarrassing collection calls to places of employment and family. Damage to credit scores. Garnishment of wages. The end result for many was filing for bankruptcy in order to stop the bleeding.
Many may think that payday lenders are offering assistance to those who cannot obtain financial assistance through traditional means such as bank loans, credit card cash advances, asking employers for pay advances, or loans from friends and family. In reality, these loans are predatory in nature. Payday lenders work to exploit hard-working people at their most vulnerable moments.
The CFPB’s provisions were established to protect borrowers from the harmful practices of payday lenders. Many people are living paycheck to paycheck, not because they can’t manage their money properly or are living an extravagant lifestyle, but because they simply had a temporary setback or an unplanned emergency. Seeking out a loan or financial assistance to get a moment of relief should not end in financial disaster.