Though my day job is rock ’n’ roll (touring/songwriting/recording), I get to speak to 80 to 100 high schools a year about what I believe to be something very “rock ’n’ roll”—giving people a fair shot. Giving students a level playing field and helping them gain the freedom in their lives to use their talents, build something sustainable, and pull up their communities. To do this, they must DECIDE to turn away from the quick fixes that make our society and our world unsustainable.
One of these quick fixes is the same-day lending industry.
“The alternative financial industry (payday loans, rent to owns, etc.) is worth over $321 billion annually by making unregulated loans to the least among us. In addition to the $58 billion check-cashing business, there are buy-here, pay-here auto loan businesses worth $80 billion, payday loans worth $48 billion, open-loop prepaid credit cards worth $39 billion, refund anticipation loans worth $26 billion, money orders worth $17 billion, and rent-to-own transactions worth $7 billion.” (John Hope Bryant, How the Poor Can Save Capitalism)
I tell students if you don’t want to work hard, I can’t help you—but if you are working hard, you deserve to know the rules.
We formed a charity (Funding the Future) that goes to schools, and after playing music like our lives depend on it, we show a quick film and discuss mistakes we have made and how we were able to make music a full-time job—discipline, mindset/psychology of money, goal setting, avoiding the hype and garbage we are sold 24/7 through TV/marketing/social media, credit score, credit cards, etc. But of all the things we discuss in the speeches and Q and As after the shows, one of the most frustrating issues is the exponential growth of the same-day lending business.
If you see a liquor store and a worn-down city block, or you are on a stretch of freeway near a run-down town, keep a look out and you will see a payday loan/check-cashing spot. In both the inner city and rural areas, they are getting easy to find. They have clerks at the counters and safety deposit boxes just like banks, but in reality, they are nothing like banks. The interest rates are insane, and you cannot build a credit score at a same-day lender. (A credit score is proven to be one of the keys that pulls communities out of poverty, as it helps consumers attain reasonable loans to build equity and ownership.) We are not against anyone working at these places—we understand this is considered a legitimate and legal job—but we want their customers to know what they are getting into.
The average interest on a same-day loan in America is 400 percent. When you consider this figure, remember that an 18-year-old who invests $50 a week with a 6 percent return has $678,000 when they retire. There are same-day lenders in the South now charging up to 1,300 percent (seriously) to people who are already struggling. Imagine the capital and potential pulled out of our communities at these rates…
Supporters of same-day lending will tell you these lenders provide an opportunity for customers with low credit scores access to quick cash until their payday. These are customers who need a short-term loan to get by, and there is no way to do that at a bank without opening an account—but if you literally have nothing, come from an unbanked family, or don’t even know what an interest rate means, you have no idea what you are stepping into. I can empathize with same-day lenders who contend that making loans to people with no or bad credit scores and nothing saved is very risky. These lenders don’t break even until they charge 30 to 40-plus percent (which also happens to be the area of limit in the few states that regulate them). But 1,300 percent? Come on. There used to be rules for loan sharks; the mafia doesn’t charge this kind of interest. This is the profit motive working overtime to cash in on those who are struggling.
I have talked to numerous people one-on-one after our shows who have been hurt by these practices. These are folks who want to turn things around, but they end up paying more in interest than to the principle on their loan. These are not folks with a lack of work ethic or ambition. Often a health emergency, accident, or a general misunderstanding of how interest works can easily get a good person buried under bad debt.
Many people we talk to, including some bankers, have never heard of same-day lending—or are unaware of these astronomical rates. If you are well-off (and good on you), you have probably never had to take one of these high-interest loans. Many of us are lucky enough to come from a family that had an account with a bank or credit union, and access to at least small amounts of cash for an emergency.
But if you came from an unbanked family, your experiences are different at every step along the road:
—“One in five households (mostly Black, Latino, or Native American) are underserved by the banking industry, costing these households an average of $3,029 per year in fees and interest just to access their own money. This ‘wage theft’ takes a total of $103 billion per year out of the communities that need it most.” (Underbanked and Overcharged)
—Payday lenders grew from a reported 200 nonbank loan offices in the early 1990s to almost 24,000 by the mid-2000s (Edmiston, 2011), and they generate billions in fees per year. In many states, there are more same-day lenders than Starbucks and McDonald’s combined. We played a school on Mcgavock street in Nashville, Tennessee, and within two blocks I counted 13 same-day lenders. These kids can’t walk around and find a place to get food, but they can see the misleading signs on the windows: “QUICK CASH – GET A LOAN FOR 10%.” If they were to read the fine print, they could be paying back that loan for years.
—Same-day lenders set up shop on military bases around the country, offering spouses of the very people defending us to pay high rates of interest. After seeing the evidence that payday lenders target military markets, the Department of Defense lobbied Congress to enact the Military Lending Act, with a cap of 36 percent APR on loan rates to military members and their families. This would be a fantastic thing to happen nationwide.
—We have seen same-day lenders advertise their “services” inside high school newspapers, waiting for kids to turn 18 and start their journey in crippling debt.
—It’s expensive to be poor. Underserved communities spend 10 percent of disposable income on extra fees and interest.
Thankfully, a few states have capped these loans at 24 to 48 percent. But in most states, where legislatures either deregulated the loans or exempted payday loans from traditional loan/usury laws, these places are run without any oversight. The current efforts to deregulate the Consumer Financial Protection Bureau make it clear that if we want change, we are gonna have to do it ourselves—grassroots, bottom-up—and get the word out door-to-door, community to community, and at the ballot boxes.
What is the immediate solution?
Macro
For starters, I believe financial literacy classes should be mandatory at every high school in America (only 16 percent of schools currently teach financial literacy). We must get more people to bank with local banks and credit unions so they can start building an emergency fund and eventually investing in themselves.
Micro
Let’s start educating people about alternatives to same-day loans (from https://www.credit.com/loans/loan-articles/the-truth-about-payday-loans/):
- Negotiate a payment plan with the creditor.
- Charge the amount to your credit card.
- Receive an advance from your employer.
- Use your bank’s overdraft protection.
- Obtain a line of credit from an FDIC-approved lender.
- Borrow money from your savings account.
- Ask a relative to lend you the money.
- Apply for a traditional small loan.
- Ask your creditor for more time to pay a bill.
- Use a cash advance on your credit card (still high interest).
After years of looking at both sides of this issue, I believe that most same-day lenders are debt traps that destabilize our communities and add to the cycles of poverty and violence that make our society less safe and sustainable. Please speak out and share. When we get too far behind, we lose hope—and then we make everyone else miserable. I believe we are all in this together, and the last thing we should do is hurt those who are already struggling.
Thanks for reading.
—Gooding
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More
NETFLIX/HBO
—John Oliver on payday loans (10 minutes with Sarah Silverman, hysterical and brutal)
—“Dirty Money,” episode two (interesting look at the lengths one will go to avoid regulation and earn a profit)
AMAZON/YOUTUBE
—“The Ordinance” (churches in Texas banding together to send same-day lenders packing—wonderful 30 minutes)
FURTHER READING
-https://www.washingtonpost.com/business/economy/a-way-of-monetizing-poor-people-how-private-equity-firms-make-money-offering-loans-to-cash-strapped-americans/2018/07/01/5f7e2670-5dee-11e8-9ee3-49d6d4814c4c_story.html?utm_term=.68ee527ed70a
—https://www.credit.com/loans/loan-articles/the-truth-about-payday-loans/
—http://www.paydayloaninfo.org/state-information
—https://www.nbcnews.com/business/economy/there-are-more-payday-lenders-u-s-mcdonalds-n255156
—http://www.faireconomy.org/dream15
—https://www.huffingtonpost.com/2013/05/05/payday-loans-cost-economy_n_3211597.html
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