Payday Lending For Seniors

imageLast 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.

[Cash Flow]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.

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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.

High-Interest Lenders Tap Elderly, Disabled (WSJ.com)

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  • We want to set the record straight.

    The February 12th front-page Wall Street Journal story by Ellen E. Schultz and Theo Francis, “Social Insecurity: High-Interest Lenders Tap Elderly & Disabled” confuses payday lenders with other types of small loan services: primarily installment and catalog lenders.

    The article describes loan practices that are NOT conducted by payday lenders.

    Errors in the WSJ article

    Example 1:
    The article says payday lenders are “…forging relationships with banks and arranging for prospective borrowers to have their benefits checks deposited directly into bank accounts.” This is patently false. State laws only authorize payday lenders to hold a personal check, deposited on the borrower’s payday.

    Example 2:
    The story says: “One-fifth of those without conventional bank accounts are receiving government benefit checks through nonbanks, including payday lenders.” This, too, is blatantly false. Payday lenders do not receive checks on behalf of recipients (state law prohibits this practice) and 100 percent of payday lending customers have a checking account at a bank or credit union.

    Example 3:
    The two key anecdotes detailed in the article involve companies that are not payday lenders: Miracle Loans and Money Tree of Georgia

    Example 4:
    The article says that the payday lending industry is “clustered” around government-subsidized housing in Washington, D.C. “There are at least four payday lenders within a mile-and-a-half of Fort Lincoln,” the piece says. Washington, D.C., is an urban environment. A mile-and-a-half away from a location in an urban environment does not constitute “clustering” by any known standard.

  • Unfortunately you’ve quoted an inaccurate story. The reporters of the Wall Street Journal article seem to be writing about the payday lending industry but then describe practices of businesses that are NOT payday lenders. Since then editors at the newspaper have admitted that the subject of their article was not the payday lending industry. Licensed payday lenders do not work with other banks to have customers benefit checks deposited into their accounts then transferred to the payday lender (state laws prohibit this practice).

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