Last week, the Wall Street Journal had an interesting article about seniors using payday lenders to make ends meet. Generally payday lenders require someone to have an incoming paycheck but with seniors they are using their social security benefits to secure the loans. “These people always get paid, rain or shine,” says William Harrod, a former manager of payday loan stores in suburban Virginia and Washington, D.C. Government beneficiaries “will always have money, every 30 days.”
While the law bars the government from sending a recipient’s benefits directly to lenders, they have found ways to get around this. According to the article, lenders have forged relationships with banks and arrange for prospective borrowers to have their benefit checks deposited directly into bank accounts. The banks immediately transfer government funds to the lenders. The lender then subtracts debt repayments, plus fees and interest, before giving the recipients a dime.
There are no publicly available statistics on the proportion of payday loans that are backed by Social Security and other government benefits. But dozens of legal-aid lawyers, senior service groups and credit counselors across the country say they are seeing more and more clients on Social Security struggling with multiple payday loans.
The Treasury Department, charged with ensuring that Social Security payments reach beneficiaries, says privacy rules forbid it from monitoring recipients’ bank accounts without cause. Social Security Administration officials say the agency isn’t responsible for benefits once paid out and that beneficiaries who run into problems should consult an attorney.
An analysis of data from the U.S. Department of Housing and Urban Development shows many payday lenders are clustered around government-subsidized housing for seniors and the disabled. The article provides a map that shows how storefront lenders have targeted recipients of government benefits which you can see here.
While this isn’t exactly reverse mortgage related, I encourage everyone to check out the full story at the link below.