Senior Citizens Impacted by Payday Lending
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UPDATED: Feb 8, 2021
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A new report found that senior citizens are a large demographic affected by bank payday loans.
The Center for Responsible Lending (CRL) report found that one out of every four payday loan borrowers is a senior citizen receiving Social Security benefits.
The 2011 findings are consistent with 2010 data, which means that the dismal findings are not changing for senior citizens on benefits.
As of March 1, 2013, the threat to Social Security recipients was increased when electronic distribution of government benefits became mandatory. Instead of previous protocol to distribute benefits via a paper check, Social Security benefits are now directly deposited to checking accounts or prepaid cards.
The Treasury Department did prohibit government deposits to prepaid cards for fear that payday loan lenders could remove borrower’s necessary benefits. But risks remain open for checking account holders.
“Benefits deposited into traditional checking accounts remain at risk to bank payday loans, where banks would repay themselves the loan amount before any other expense or creditor,” the report said.
Bank payday lenders include some of the top companies including Wells Fargo, Regions Financial and US Bancorp.
Kathleen Day, media relations for the Center for Responsible Lending, said the Treasury Department’s decision to only limit prepaid cards instead of checking accounts was likely inadvertent.
As for the popularity of payday loans, Day said senior citizens take out payday loans for the same reasons everyone else does — because they need money and the offer is tempting.
But while the loans are marketed as being short-term, the average bank borrower is in debt with one of the loans for around six months throughout the year.
In addition to the main finding, the report also found that in 2011, bank payday loan borrowers took out an average of 19 loans throughout the year. The borrowing of these loans is possible only in the states which allow payday lending.
When compared to average bank customers, payday loan borrowers were twice as likely to incur overdraft fees. This is likely due to the fact that payday loan debts are usually rolled over month-to-month until they become a much larger debt.