When Jessica Vega landed her first job out of college as a case manager for a nonprofit organization, money was tight. But she was excited to move out of her mother’s house and into an apartment of her own.
That was nearly 15 years ago, but Vega is using her experience to push for a law to regulate payday loans in her home state of Rhode Island.12 million borrowers take out these loans, and most are never subject to credit checks or other reviews to assess their ability to repay. Approximately 80% of the loans are not repaid within the initial two-week period. Like Vega, customers let their loans roll over, often many times.
“Payday lenders have the ability to collect, even if borrowers don't have the ability to repay,” according to Alex Horowitz, a project director who leads small-dollar loan research at the Pew Charitable Trusts. “That's because payday lenders take access to a borrower's checking account on payday for the loan. serves as their collateral.”
The payday lending industry emerged in the early 1990s, but really gained steam in the mid-2000s, Horowitz says. Today, the average loan is relatively small — just $375, “but most borrowers end up paying more in fees than they originally got in credit,” he says. They “end up in debt for many months of the year, even though they took a loan that just originally said it would be for a two-week term.
“They try all of these different structures and subterfuges and everything they can think of to try to make money off the backs of working people in this state,” Stein says.
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