Let’s say your family is living paycheck to paycheck when your finances suddenly take multiple hits. Maybe you lose a week’s pay because you’re sick and have to stay at home, and then your car breaks down. Or maybe your child gets strep throat requiring a doctor’s visit and medication, and then the refrigerator gives out.
If you have credit cards or savings, you might be able to handle these emergencies. But if yours is one of the many families in North Carolina who have neither, you might find yourself in a panic when rent is due and you’re a few hundred dollars short.
What do you do?
This is a question thousands of North Carolina women face every month. And nationally, women more often than men decide the answer is to get a payday loan. That’s a small loan that you usually have to pay back on your next payday, along with a sizeable fee – or you can pay to continue the loan.
Each year, 12 million American adults use payday loans – not just once, but over and over. According to a report by the Pew Charitable Trusts, the average payday borrower “takes out eight loans of $375 each per year and spends $520 on interest.” In fact, many payday lenders charge fees that are the equivalent of annual interest rates of up to 400%. It’s not uncommon for families to pay in interest and fees many times the amount they originally borrowed.
These loans are incredibly lucrative for the businesses and banks that make them, but they are damaging to families and communities. North Carolina got rid of its payday lenders in 2006, thanks to Attorney General Roy Cooper and lawsuits charging that the lenders’ fees exceeded the state’s limits on interest rates.
But they are working their way back into the state. This year, the industry hired 10 lobbyists and there is now a bill before the NC General Assembly that would legalize payday loans. In addition to outcry from consumer advocates, the state’s military leaders have asked lawmakers to reject the bill because payday lenders often target low-paid military personnel and their families.
Payday lenders used to be primarily storefront operations, but now some of the nation’s biggest banks are getting into the game. Wells Fargo, US Bank, Fifth Third Bank, and Regions Bank all offer payday loans, but not in North Carolina. Regions tried to offer payday lending here last year, but it got so much pushback from advocates that the bank changed its mind. For now, anyway. What happens this legislative session will likely help the banks decide their next moves in North Carolina.