“They were great, XXXX’s a great company,” Veronica said to me as we sat in my office chatting about her finances. “They really worked with me.” For a moment I sat in silence, not knowing how to respond. XXXXX was the name of the payday loan company that Veronica had spent many many months repaying. No doubt they were present at the recent meeting of the trade association representing the industry, held last week at one of Trump’s Florida resorts. When I first met Veronica, she had already paid more than $1000 on a $500 loan taken seven months before, and the balance was still $492.
It had seemed like a never ending suck on her finances. Why on earth was she praising them?
I had been working with Veronica for months as part of a research project learning from and advising people with mental illness about their finances. Veronica has to manage her schizophrenia, which she does really well. She also has to manage living on a very low income; her disability check of less than $1000 a month is supplemented by her husband’s sporadic income from factory work and her own occasional work as a companion and homemaker. Her husband has complex, ongoing parole requirements that often result in fines, if he wants to avoid jail time. Her three sons, one, inpatient in a mental health facility, the second recently out of jail and struggling to find a job, and one still in high school, are unable to contribute financially; instead, they often need financial help from Veronica.
I had spoken with Veronica about budgeting, planning to save, distinguishing between needs and wants; all of the things that financial counselors discuss with their clients. But Veronica already budgets much better than I do. She constantly thinks up new ways to squirrel something away, but every time she manages to put aside a couple of hundred dollars, within days has to spend it on some pressing need.
She knows very well the difference between needs and wants, and is only ever able to meet the former.
Because of her tight finances, Veronica had signed up now and then for online “make money quick” offers, promising a lucrative income but requiring purchase of a “sales package” up front. I had had some success in convincing Veronica of the worthlessness of such schemes, and I generally felt that we had made progress in our discussions about debt. When she had told me about her outstanding payday loan, we had spoken at length about the downsides of such costly debt. After months of loan rollovers, and partial payments, Veronica was finally free of the loan, but only at an enormous financial cost. Yet now she was telling me about how great her payday loan company was! What had gone wrong with my carefully crafted counseling?
As Veronica explained, I found out that she had not, actually, finished repaying her loan. She kept getting close, but could never quite pay the debt off. Finally, after repeated calls to the company, they had agreed to “work with her,” holding the amount at $200. They told her that she should just pay it when she was able (or more pointedly, if she ever wanted to take another loan). Even though she had paid them more than $1,600 for the original $500 loan, Veronica was left feeling they had done her a favor. And, most importantly, she would be able to borrow from them again one day, if she needed it.
Because, despite her best efforts, Veronica simply can’t get by without borrowing.
She tries to save, but is never able to put money aside for long. Like the 58% of payday loan borrowers who have trouble meeting their monthly expenses at least half of the time, Veronica simply can’t make ends meet. She has to pay the utility so her lights aren’t shut off. She has to pay her rent, to avoid being evicted. She has to pay the bondsman. She simply has no choice. She has to borrow. And, in the absence of reliable, affordable credit, Veronica needs the payday lender as a back-up. Her credit score is too low for her to be considered for a credit card. She occasionally pawns a ring that had been her mothers, but is terribly afraid of losing it. She has a strong network of friends and relatives from whom she borrows, but can never ask too much of one person, and always repays in full, on the day promised. Not simply because she is a deeply moral person, and a promise is a promise, but also because she needs to sustain those relationships, to be able to borrow again. And again. And again.
It is perhaps people like Veronica that the payday loan industry has in mind when they argue that their loans provide a “financial lifeline”, when they have nowhere else to turn. In a sense they are right. Veronica sometimes has nowhere else to turn. But the ‘lifeline’ that they offer her is a cruel one. Of course it looks good, if the choice is between that or leaving her son or husband in jail. Or having her electricity shut off, and living without light and heat. Or being evicted from her home.
In a country as rich as ours, no-one should have to make such choices.
Late last year, the Consumer Financial Protection Bureau (CFPB) issued rules to protect borrowers, including requiring payday lenders to determine a borrower’s ability to repay a loan before approving the loan, and limits on repeat loans. While these regulations will not solve the underlying problem of families unable to meet their basic needs, they could at least help people like Veronica avoid getting into long term traps, and ending up paying absurdly high costs for their loans. Unfortunately, even before having been put into practice, the CFPB, under new management, is now reconsidering those regulations.
Annie Harper is a cultural anthropologist, working for the Yale School of Medicine’s Department of Psychiatry, where she is Program Manger of the Program for Recovery and Community Health’s Financial Health Project. Her research focuses on how low-income people, particularly people with mental illness, manage their finances, and engage with the financial services industry. She has published extensively on the connection between mental health and financial health.