Last month, the Pew Charitable Trusts released Who Borrows, Where they Borrow and Why, the first in their Payday Lending in America series. Their research gives us insight into behaviors and policies behind the use of payday loans, which we know are a costly alternative to traditional banking. Among five groups identified as highly likely to take out payday loans are individuals earning less than $40,000 annually.
In the report and interactive features, Oklahoma clearly stands out with the highest usage rate in the nation for payday loans, at 13%. Part of the problem for Oklahoma, as pointed out in the Pew report and numerous news articles, are the permissive laws regulating payday lenders. The so-called “hybrid states,” which restrict storefront payday loan operators to lower limits on fees, all have usage rates significantly lower than Oklahoma. However, the best results are from states with the most restrictive laws, and therefore no storefront payday loan operators, some of which come in as low as 1%.
Clearly, Oklahoma’s low-income consumers could benefit from more protective legislation regarding payday lending. But short of that, what can we do to deter individuals from taking out costly payday loans? Since low-income households still need access to credit for purposes of asset building and emergencies, some experts are calling for more financial education on building credit and assets as well as innovative new products to help individuals build their credit. The Pew study gives credence to solutions incorporating asset building, pointing out that while low-income individuals are more likely to take out a payday loan, the trend is reversed when home ownership is factored into the equation. Low-income homeowners, it turns out, are less likely to take out a payday loan than higher-income renters.
To access the Pew Charitable Trusts Quiz on Payday Loans, click here.
To read more about Oklahoma and Payday Loans, check out State Impact’s July article by clicking here.
A previous post discussing the use of payday loans and alternative financial options is available by clicking here.