Payday
Lenders, Thinly Disguised Loan Sharks
by Ellise Walsh
When you think of scenes from
movies of 19th century life, you think of Oliver Twist or My Fair
Lady. The squalor of life the poor lived in was the stuff of legend. We
imagine we live in times that are more progressive where the exploitation of
the poor is a thing of the past. But the truth is, the modern day “pay day
loan” business has its roots as far back as the turn of the 20th century.
Back then, they were called “salary buyers” and they would advance their
“customer” the money from their pay check for a fee. The problem was that fee
was exorbitant. So if the customer came to them to “sell” their salary of
$650, they would give the customer $500 and keep the rest.
In truth, the very term “loan shark” was coined around this despicable
practice of stalking desperate people who need money quickly and taking an
unfair cut of their salary for the “fee”. We see them on many of our city
streets. Those stores that advertise that they will cash your payroll check
right now. One wonders why someone who needs every dollar they have would use
such a service.
Part of it no doubt comes from the inability or unwillingness of the poor or
lower middle class to use conventional banking services. Instead, they live
one-step beyond “hand to mouth” because they convert their pay immediately to
cash so they can use it without the overhead a bank introduces. So then the
logical question becomes, why not open a banking account like everyone else?
The reasons this class of people might avoid a bank might include:
-
Some problem with the source of
funds or a desire to stay out of the “mainstream” due to difficulties with
the law
-
A deeply rooted distrust of
financial institutions
-
Some people like to “see their
money”. When the money goes into the bank, you never see more than a number
on the page. By cashing their check, that large bulk of physical dollar
bills gives the sensation of prosperity
-
A dislike of the fees banks
charge
This last idea, if that is part of
the avoidance of conventional financial institutions is the most
incomprehensible of all because the fees the loan sharks charge to “cash their
check” are far beyond anything any bank could ever charge.
So what can be done about it? From a societal level, at the moment, sadly not
very much. Like many social ills, the best attack plan is one of education and
awareness of alternatives to using loan sharks to get access to the money they
have earned. The list below comes from noted experts in financial management
and represent some sound steps someone in financial or credit trouble can
begin to get organized to get out of the cycle of victimization.
Sit down and study what you
are paying for those “payday cash services”. If math is not easy for
you, have someone help you with how much they are charging. When you
discover that those services are charging. 20-30-40% of your pay, sometimes
more, you will understand why they are called “loan sharks”.
Go and talk to a bank.
If you feel intimidated by them, take a friend who has a bank account to
help you. Banking personnel are almost always very friendly and easy to work
with and they can set up a bank account for you for much less of a fee than
those salary lenders were hitting you for.
Begin to build up some cash
reserves. Put your money in the bank and learn how to watch the
balance. Then try to keep back a little each month to build up an account
balance. Even if it is only five dollars a month, it’s a start.
Get some help.
There are agencies that can help you learn how to manage your money, build a
budget and get on a program to pay off your debts using the funds you
already are making. It seems impossible but it isn’t. With some solid
financial advice, you can do it.
Start building new credit.
If you have credit problems, start small but if you have one small credit
card, even just a department store or gas credit card and you charge on it
and pay off the balance each month, your credit will begin to grow.
It may be difficult at first to get
out of the hands of the loan sharks. But the good feeling you have when your
money is being managed right will make it all worth it.
