Helen Sheng | Vice President of Marketing
Until I joined JIFFI, I, like many others, had no idea about the dangers of predatory lending (or really what it even was). Unfortunately, it has become one of America’s ugliest secrets. Although it has been receiving a lot more media attention lately, very little is actually being done to combat this monster.
The mechanism of payday loans is deceptively simple. Sure, a small 14-day loan with a 15 to 30 percent interest rate sounds fairly reasonable (especially when most people intend on paying them back quickly). But a cursory interest calculation shows that annual percentage rates usually end up being over 300 percent. After borrowers realize they can’t pay back the full amount in 2 weeks, the payday lender gives them the option of extending the loan term and paying back the interest. In short, the borrower keeps paying interest but never knocks down the principal loan amount. Since these are short term loans, it could be considered unfair to judge them by an annual rate, but lenders actually do make their money on the long term—the Center for Responsible Lending reports that 76 percent of predatory lending revenue is generated on repeat borrowers, perpetuating this cycle of debt that keeps people in poverty.
This is what makes payday lending a 9 billion industry, with more locations than McDonald’s and Starbucks combined. Unfortunately, there isn’t much regulation on predatory lending—with their aggressive techniques and contracts, lenders can get away with annual interest rates in the thousands.
Micro finance institutions like JIFFI are fighting an uphill battle. Payday lenders have the resources, the demand, and the momentum to continue swelling in size and taking advantage of people in financial difficulties. To learn more about predatory lending practices and ways to protect yourself, check out this article:
Helen is a sophomore studying IT Management. In her spare time not spent working at JIFFI, Helen enjoys participating in SIBC and chasing waterfowl.