A Great Offer?
One of my employees recently received a seemingly exciting offer: pre-selection for a loan of up to $450 from Check 'n Go, one of the largest payday lenders in America! Given that she works for a company keen on putting them out of business, it seems like they did a poor job with their marketing strategy, no? This got me thinking, though. Have you ever noticed that middle to upper-middle income individuals are bombarded with credit card offers in the mail, not to mention the constant barrage of TV and radio ads asking them what's in their wallet and shouting, "Cash back rewards," and "Bonus miles"? Or that if you are lower-income you can't take a step without seeing bright neon signs, flyers, mailers, and radio and online ads practically thrusting "Instant Cash!" into your hands? Those least able to afford it are encouraged to make use of the most expensive products, often delivered by companies all-too-happy to hide fees, engage in predatory or illegal practices and wring every ounce of profit from the financially insecure.
Let's take a look at this phenomenal offer. The first thing you WON'T notice is any mention of the terms and conditions. All it says is that you can get a 'cash advance' of up to $450 and that you have until August 21st to respond. Absent is mention of the 260% APR interest rate, or the fact that the loan comes due in two weeks. The second thing you should know is that Check 'n Go doesn't just randomly send out these offers; rather, they purchase data about you from a number of brokers, data they use to determine if you are likely to need a loan. This data includes household size, income, spending habits, credit score, employment status, and even things like political affiliations and education. Finally, look how easy they make it to apply! You can simply walk into a store with proof of income, ID and a checking account, and boom--out you go with your new loan!
Going back to those terms, it turns out that your $450 could easily end up costing you over $500 in interest. Not only that, but you may also find yourself in a situation where overdrafts start piling up, more and more of your paycheck is going toward interest payments, and what seemed like a quick solution becomes a financial sinkhole.
Recognizing that we can neither depend on legislation nor market forces to reign in predatory practices --mainstream institutions have shown no appetite for small dollar consumer lending and legislators are asleep at the wheel--we feel it incumbent on us to pick up the mantle of reform. Rather than wait for things beyond our control, we are working to scale our Emergency Loan while combining it with one-on-one Financial & Health Coaching. Thanks to funding from the Rhode Island Foundation and the United Way of Rhode Island, we are about to launch both our first online loan application and a series of ads on RI Public Transit Authority buses. In the coming months, therefore, we expect to see strong growth in the program; growth that should give the payday lenders a run for their money!
To learn more about payday lending, check out our blog posts: 'Payday Loans Are Fatally Flawed,' 'Sharks in the Water: The Wild West Of Online Payday Lending' and 'Girding For A Fight')
One of my employees recently received a seemingly exciting offer: pre-selection for a loan of up to $450 from Check 'n Go, one of the largest payday lenders in America! Given that she works for a company keen on putting them out of business, it seems like they did a poor job with their marketing strategy, no? This got me thinking, though. Have you ever noticed that middle to upper-middle income individuals are bombarded with credit card offers in the mail, not to mention the constant barrage of TV and radio ads asking them what's in their wallet and shouting, "Cash back rewards," and "Bonus miles"? Or that if you are lower-income you can't take a step without seeing bright neon signs, flyers, mailers, and radio and online ads practically thrusting "Instant Cash!" into your hands? Those least able to afford it are encouraged to make use of the most expensive products, often delivered by companies all-too-happy to hide fees, engage in predatory or illegal practices and wring every ounce of profit from the financially insecure.
Let's take a look at this phenomenal offer. The first thing you WON'T notice is any mention of the terms and conditions. All it says is that you can get a 'cash advance' of up to $450 and that you have until August 21st to respond. Absent is mention of the 260% APR interest rate, or the fact that the loan comes due in two weeks. The second thing you should know is that Check 'n Go doesn't just randomly send out these offers; rather, they purchase data about you from a number of brokers, data they use to determine if you are likely to need a loan. This data includes household size, income, spending habits, credit score, employment status, and even things like political affiliations and education. Finally, look how easy they make it to apply! You can simply walk into a store with proof of income, ID and a checking account, and boom--out you go with your new loan!
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| Image Credit: taberandrew |
Going back to those terms, it turns out that your $450 could easily end up costing you over $500 in interest. Not only that, but you may also find yourself in a situation where overdrafts start piling up, more and more of your paycheck is going toward interest payments, and what seemed like a quick solution becomes a financial sinkhole.
Recognizing that we can neither depend on legislation nor market forces to reign in predatory practices --mainstream institutions have shown no appetite for small dollar consumer lending and legislators are asleep at the wheel--we feel it incumbent on us to pick up the mantle of reform. Rather than wait for things beyond our control, we are working to scale our Emergency Loan while combining it with one-on-one Financial & Health Coaching. Thanks to funding from the Rhode Island Foundation and the United Way of Rhode Island, we are about to launch both our first online loan application and a series of ads on RI Public Transit Authority buses. In the coming months, therefore, we expect to see strong growth in the program; growth that should give the payday lenders a run for their money!
To learn more about payday lending, check out our blog posts: 'Payday Loans Are Fatally Flawed,' 'Sharks in the Water: The Wild West Of Online Payday Lending' and 'Girding For A Fight')
Something similar happened in our shop when Ana Patricia, who was working to help people in foreclosure, got a scam letter at her house. We made a comic and a video about it and posted it with Communities & Banking magazine, here, http://www.bostonfed.org/commdev/c&b/2013/spring/ana-patricia-gets-a-scam-letter.htm
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