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High Interest Payday Loan Lenders Target Vulnerable Communities During COVID-1905:47
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A payday loans store in Springfield, Ill. (Seth Perlman/AP)
A payday loans store in Springfield, Ill. (Seth Perlman/AP)

With millions of Americans unemployed and facing financial hardship during the COVID-19 pandemic, payday loan lenders are aggressively targeting vulnerable communities through online advertising.

Some experts worry more borrowers will start taking out payday loans despite their high-interest rates, which happened during the financial crisis in 2009. Payday lenders market themselves as a fast financial fix by offering quick cash online or in storefronts — but often lead borrowers into debt traps with triple-digit interest rates up to 300% to 400%, says Charla Rios of the Center for Responsible Lending.

“We anticipate the payday lenders are going to continue to target distressed borrowers because that's what they have done best since the 2009 financial crisis,” she says.

Following the Great Recession, the unemployment rate peaked at 10% in October 2009. This April, unemployment reached 14.7% — the worst rate since monthly record-keeping began in 1948 — though President Trump is celebrating the improved 13.3% rate released Friday.

Despite this overall improvement, black and brown workers are still seeing elevated unemployment rates. The jobless rate for black Americans in May was 16.8%, slightly higher than April, which speaks to the racial inequalities fueling nationwide protests, NPR’s Scott Horsley reports.

Data on how many people are taking out payday loans won’t come out until next year. Since there isn’t a federal agency that requires states to report on payday lending, the data will be state by state, Rios says.

Payday lenders often let people borrow money without confirming the borrower can pay it back, she says. The lender gains access to the borrower’s bank account and directly collects the money during the next payday.

When borrowers have bills due during their next pay period, the lenders often convince the borrower to take out a new loan, she says. Research shows a typical payday borrower in the U.S. is trapped into 10 loans per year.

This debt trap can lead to bank penalty fees from overdrawn accounts, damaged credit and even bankruptcy, she says. Some research also links payday loans to worse physical and emotional health outcomes.

“We know that people who take out these loans will often be stuck in sort of a quicksand of consequences that lead to a debt trap that they have an extremely hard time getting out of,” she says. “Some of those long term consequences can be really dire.”

Some states have banned payday lending, arguing that it leads people to incur unpayable debt because of the high-interest fees.

The Wisconsin state regulator issued a statement warning payday lenders not to increase interest, fees or costs during the COVID-19 pandemic. Failure to comply can lead to a license suspension or revocation, which Rios thinks is a great step considering the potential harms of payday lending.

Other states such as California cap their interest rates at 36%. Across the nation, there’s bipartisan support for a 36% rate cap, she says.

In 2017, the Consumer Financial Protection Bureau issued a rule that lenders need to look at a borrower’s ability to repay a payday loan. But Rios says the CFPB may rescind that rule, which will lead borrowers into debt traps — stuck repaying one loan with another.

“Although payday marketers are marketing themselves as a quick financial fix,” she says, “the reality of the situation is that more often than not, people are stuck in a debt trap that has led to bankruptcy, that has led to reborrowing, that has led to damaged credit.”


Cristina Kim produced this story and edited it for broadcast with Tinku RayAllison Hagan adapted it for the web.

This segment aired on June 5, 2020.

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