The Problem of High-Cost Payday Loans

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Politicians and public personalities alike call for proactive actions towards decreasing the burden from loans. Lending has become “predatory” as many point out. For some households, even the poverty premium on essential things are quite bothersome. Searching for a reasonable credit becomes increasingly harder with each year. The recent study by the several institutes shows, debt becomes a huge problem for the poorest. Roughly each 2nd poor household (about 20% of all households in America qualify as poor) have to spend up to 30% of their overall income to cover debt.

This situation is quite tough and requires attention from both legislative institutes and people who consider borrowing money. The debt burden can be unbearable and selecting the right source of credit is quite important.

Stress Inducing Loans

The high price of a credit pressures all people despite the implementation of the payday loans cap. People who cannot afford taking a high-cost credit have to continuously work against the debt and reborrow funds to pay for previous loans that were supposed to be short-term debts. Constantly trying to find a way to cover monthly payments and still paying an amount even higher than the original loan.

One of troubling symptoms of this situation is that child poverty is on the rise and has been rising ever since 2010 with roughly 35-40% of children in some states of America qualifying as poor. Millions of people all over the America are in big problems in regards to debt. All of them are behind their payments and have to ask for legal advice and search for a saving hand in specialized organizations. The discussion around this subject is gaining momentum, but there are lots of problematic factors that should be addressed in order to fix the debt crisis that currently overwhelms Americans.

One of better news in regards to this topic was recently showcased in many magazines. Michael Sheen, a famous actor and showman, decided to kickstart an independent organization to help out people in debt and search for better solutions to the problem in general. The End High Cost Credit Alliance is a special union of various charities and reliable fair lenders who try to solve the problem.

This is a good move on the star’s part, but we need more movements like that. Fair, cheaper credits will help on many fronts including the mental health of borrowers. Multiple studies showed that being in debt significantly increase stress. A high-cost credit is not just a simple monetary problem it creates a burden pressuring financially, psychologically, and even physiologically.

Payday loans are used by over 12 million Americans annually. Some of these people are taking several different credits at once. The correlation between borrowing money and the state of mental health is frighteningly telling. Over 38% of high-cost credit users report much poorer health.

High-Cost Credits Must Be Regulated

There are several proactive actions that have been taken by people in Washington DC, Colorado, and Missouri. In fact, 15 states implemented various programs to protect citizens from predatory lenders and create a healthier environment for those who desperately need financial aid. Colorado decided to double down on the issue and dramatically tighten the regulations regarding high-cost credits. Politicians of Colorado call for similar moves from the US government. Even adding a simple another verification step that prevents lenders to give money to borrowers who cannot pay was a huge step in the right direction.

Steve Helms, a senator from Missouri, says that fees and interest rates should be capped at 35% of the total amount of a loan instead of 75%. At the same time, the interest rate also needs capping as rates go higher and reach 400% per year.

The problem is that there are government bills like “Protecting Consumers’ Access to Credit Act of 2017” that will effectively undo all positive efforts from state governments.