A loan of 5,000 dollars, repayments due every fortnight, an annual interest rate of 589%: the story of Jamie Johnson that Bloomberg tells is edifying.
It is all the more so because it is not exceptional. In the United States, at least in certain regions that have little regard for the issue, the business of «payday loan», a payday advance at rates exceeding usury to achieve the cruelest predation, is in full swing.
This loan shark industry, Bloomberg explains, caters to the 160 million Americans whose «credit score» is too mediocre to access more traditional financial institutions – typically black and Latin communities, already the most disadvantaged. This type of loan was expected to suffer during the crisis, on the contrary it lived one of its best years.
Paradoxically, these loans owe much of their Olympic form to plans to support the economy and workers put in place by the country’s government since the start of the crisis. If the recovery has since made a difference, the explosion of unemployment in 2020 prompted the Trump administration, and then the one that followed, to send checks to all American households.
Already in difficulty in a country where, to speak only of this example, health costs can literally ruin, many of them took advantage of the arrival of these incomes to get into debt with one or the other. other of the lending institutions. This was the case with Jamie Johnson, who needed funds to feed his wife’s four children and take care of his ailing mother.
Others, on the contrary, took advantage of this exceptional windfall to partially repay their most costly debts – this was the case for about a third of households, according to a study by the Federal Reserve Bank of New York.
To wear
Result: the large firms in the sector, like Enova International Inc. or Elevate Credit Inc. and their subsidiaries, are delighted with a year of record profits. The owners of small local shops, numerous in certain areas (7.6 «payday stores» per 100,000 Michigan residents) can smile too.
For those who, on the other hand, had no choice but to appeal to predatory funding from one of these establishments, the spiral could have become hellish. Bloomberg tells how Kimberly Richardson ended up drowning in debt.
Losing part of his income after the discovery of a cluster in the factory that employs him, Richardson began to encounter difficulties in repaying the drafts of a small loan of $ 1,500 contracted after from CashNetUSA, a subsidiary of Enova – the total interest rate on her loan was 276%.
Far from making her responsible, CashNetUSA encouraged her to borrow more and more to repay more, until her financial situation was completely untenable: she then had to declare herself in personal bankruptcy, after the repayment of 10,000 dollars to the credit institution.
Many consumer and borrower associations are strangling such conditions and practices. A law has been considered to impose a federal framework on this jungle of short-term credit and to limit interest rates.
Not only did it never succeed, but in July 2020, lawmakers unraveled the regulations a little more in this area, allowing Enova or Elevate to prosper even more easily on household difficulties. In a context of economic recovery – and recovery in hand of the economy -, the Biden administration could nevertheless seize the question and bang its fist on the table.
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