I found this article about payday loans and was shock to see how they have taken advantage of poor, elderly , and disabled people. One recent morning, dozens of elderly and disabled people, some propped on walkers and canes, gathered at Small Loans Inc. Many had borrowed money from Small Loans and turned over their Social Security benefits to pay back the high-interest lender. Now they were waiting for their "allowance" -- their monthly check, minus Small Loans' cut.
The crowd represents the newest twist for a fast-growing industry -- lenders that make high-interest loans, often called "payday" loans, that are secured by upcoming paychecks. Such lenders are increasingly targeting recipients of Social Security and other government benefits, including disability and veteran's benefits. These people always get paid, rain or shine. Government beneficiaries will always have money, every 30 days.
The law bars the government from sending a recipient's benefits directly to lenders. But many of these lenders are forging relationships with banks and arranging for prospective borrowers to have their benefits checks deposited directly into bank accounts. The banks immediately transfer government funds to the lenders. The lender then subtracts debt repayments, plus fees and interest, before giving the recipients a dime.
As a result, these lenders, which pitch loans with effective annual interest as high as 400% or more, can gain almost total control over Social Security recipients' finances.
Data from the U.S. Department of Housing and Urban Development shows many payday lenders are clustered around government-subsidized housing for seniors and the disabled.
But by the late 1990s, the federal government began requiring that Social Security beneficiaries receive their benefits by electronic depo sit to a bank account, unless they opt out. The number of recipients with direct deposit soared to more than 80% today, up from 56% in 1996. Citing taxpayer savings and greater security and convenience for recipients, the government is making a fresh push to get the remaining holdouts to participate.
With direct deposit, Social Security recipients could now more easily pledge their future checks as collateral for small short-term loans. What can be done about Payday Loans? Do the government need to put an end to this practice? What do you say?