FORT WORTH (CBSDFW.COM) – While millions of Americans struggle to pay their bills, various payday lenders are offering relief in the form of quick cash.
But these deals could end up costing long-term borrowers a lot more.
Consumer advocates argue these loans look even more attractive to vulnerable customers in light of the economic impact of the COVID-19 pandemic.
“We know they are advertising to people during this financial crisis,” said Yasmin Farahi, senior policy adviser at the Center for Responsible Lending.
Farahi referred to recent statements made by various companies in the wake of the pandemic.
“Are you afraid of the coronavirus? Title lending could be a relief for you, ”a blog post on the Texas Car Title & Payday Loan website read. “If you are already living salary to salary… then you might want to think about infusing your income with a title loan. Getting a Texas title loan can be a relief and provide you with the cash you need, especially during this time.
On its website, Advance America proclaims, “We are here to help you before or after your stimulus check arrives.”
Texas Car Title & Payday Loan and Advance America did not respond to requests for comment within the allotted time.
Farahi said payday loans in Texas carry an average interest rate of 600%.
“While touted as a quick financial fix, it leads to the debt trap,” said Farahi, who advised consumers to choose other forms of credit.
But proponents of small loans argue that people need these loans more than ever.
“In these uncertain times, it is more important than ever that Americans can access authorized and regulated forms of credit,” said D. Lynn DeVault, president of the Community Financial Services Association of America. “This is why low dollar lenders were seen as essential businesses so that we can continue to serve our communities during the pandemic – just as we have been doing for decades.”
The CFSAA is the trade group that represents cash lenders.
DeVault added that the industry has actually seen a drop in loan volumes during the pandemic.
“Many of our clients are repaying loans, many are saving, and many have cut back on spending, choosing not to seek loans,” DeVault wrote. “However, CFSA member companies are working in every way possible to meet the needs of customers who use our products and services during the COVID-19 pandemic, including offering flexible reimbursement terms.”
Statistics on the number of people who turned to payday lenders during the pandemic are currently not available, according to Ann Baddour, director of the Fair Financial Services Project with Texas Appleseed.
But Baddour said rising unemployment could play a role.
“People aren’t using these products as much right now,” Baddour said. “With so many unemployed, it can mean they don’t even qualify.”
Baddour advised qualified people to think twice.
Due to fees and interest rates, consumers could ultimately pay three times what they initially borrowed.
“It’s important to look at your finances and be very realistic about your repayment capacity,” Baddour said.
Instead of payday lenders, Baddour said consumers should seek help from organizations like CitySquare, United Way of Metropolitan Dallas or Catholic Charities.
In a recent memo, the Texas Office of the Consumer Credit Commissioner urged credit access businesses to work with borrowers and to be “practical, flexible and empathetic.”
The state has asked entities to consider waiving late fees, looking for deferred payment plans that would avoid negative credit reports, and suspending automatic foreclosures, among other suggestions.
Some lenders, like ACE Cash Express, said they helped customers during the crisis.
A spokesperson issued the following statement:
“Since the onset of the COVID 19 crisis, at ACE Cash Express, we have worked with our loan clients who are affected by the pandemic through the suspension of payment obligations and collection activities, waivers of late fees and NSF fees; and prevention of derogatory reports. to credit bureaus, among others. We will continue to work with our clients in this way. Used responsibly, short-term loans are a reasonable source of liquidity for those who do not have access to traditional credit. However, applicants are required to provide proof of income and repayment capacity, therefore, the demand for these loans has decreased significantly in the current environment.