Recovery 2015: Use Of Non-Bank Credit (e.g. Payday Loans) Continues To Soar

Tyler Durden's picture

Submitted by Mike Krieger via Liberty Blitzkrieg blog,

Families’ savings not where they should be: That’s one part of the problem. But Mills sees something else in the recovery that’s more disturbing. The number of households tapping alternative financial services are on the rise, meaning that Americans are turning to non-bank lenders for credit: payday loans, refund-anticipation loans, pawnshops, and rent-to-own services.

 

According to the Urban Institute report, the number of households that used alternative credit products increased 7 percent between 2011 and 2013. And the kind of household seeking alternative financing is changing, too.

 

– From the Citylab article: Half of All American Families Are Staring at Financial Catastrophe

It’s an economic recovery so lopsided, corrupt and fraudulent only an oligarch could love it.

One of the key themes at Liberty Blitzkrieg since inception has been to point out that the current economic recovery is largely a sham. While there are certainly meaningful innovations happening in the less regulated and corrupt parts of the economy, such as the technology sector, much of the landscape is riddled with waste, fraud, cronyism and stagnation. So much so, that I have gone ahead and characterized the entire post crisis economic environment to be the “oligarch recovery.”

Nowhere is this more evident than within the many statistics demonstrating that things for the growing American underclass are getting worse, not better. An article published last week by Citylab makes the point. It notes:

The most frightening finding in the Federal Reserve’s Report on the Economic Well-Being of U.S. Households in 2014 concerns a matter of $400. Four-hundred bucks. Twenty twenties. Four Benjamins.

Or just enough to crush half of all American households.

 

“Forty-seven percent of respondents say they either could not cover an emergency expense costing $400, or would cover it by selling something or borrowing money,” reads this year’s annual report.

 

Families’ savings not where they should be: That’s one part of the problem. But Mills sees something else in the recovery that’s more disturbing. The number of households tapping alternative financial services are on the rise, meaning that Americans are turning to non-bank lenders for credit: payday loans, refund-anticipation loans, pawnshops, and rent-to-own services.

 

According to the Urban Institute report, the number of households that used alternative credit products increased 7 percent between 2011 and 2013. And the kind of household seeking alternative financing is changing, too.

Screen Shot 2015-06-01 at 10.14.19 AM

Take a long hard look at the image above. As the public was repeatedly told that the economy was recovering and the stock market was booming, use of payday loans and other “alternative financial services” increased.

While that figure might seem small—it’s an increase of about 750,000 households total—it’s a significant figure for the economy in recovery. Families that are looking for credit aren’t finding it in mainstream financial institutions. “You used to be able to get small loans for reasonable rates, below 36 percent,” Mills says. “That’s what’s opened the door for more predatory products.”

 

The nature of households looking for alternative financial products, including predatory loans, has morphed during the recovery. According to Mills’s research, the share of households seeking non-bank credit with incomes above $30,000 increased from 42 to 48 percent between 2011 and 2013. And the share making more than $75,000 increased from 7 to 11 percent over the same span.

Screen Shot 2015-06-01 at 10.16.27 AM

We may as well go ahead and place that as the tombstone for the socio-economic entity previously known as the middle class.

It’s not the case that every one of these middle- and upper-class households turned to pawnshops and payday lenders because they got whomped by an unexpected bill from a mechanic or a dentist. “People who are in these [non-bank] situations are not using these forms of credit to simply overcome an emergency, but are using them for basic living experiences,” Mills says.

Screen Shot 2015-06-01 at 10.18.54 AM

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101 years and counting's picture

i cant believe GS and JPM havent bought all the "payday loan" shops around the country.  this seemed inevitable and such an easy way for the parasites to finally get the last pennies out of the bottom 50%.

Almost Solvent's picture

The ones based on ‘reservations’ and/or Cayman Islands won’t sue you if you default, they will just go into your bank account until you close it out. They don’t sue because they don’t want to subject themselves to a State’s jurisdiction. They will hound you with phone calls and e-mails, but in reality that’s about it. 

pods's picture

Banks are jealous that someone else is getting in on their gig.  Just like their talk about the "unbanked" years ago.

Here in NC they were all over them and their "insane" interest rates.

Do these payday loan places actually lend capital, and not just joo into existence some credit?

That might explain why the interest rates are so high. If actual money is being lent, the risk is much worse than banks.

pods

Wahine's picture

I hit all of them up in one shot and then closed my account before the loans came due.  No consequences.

Government needs you to pay taxes's picture

Part of me says 'Good for you, well done.'  Part of me says, 'you just drove up the cost of funding some someone who REALLY need it.'

SilverRhino's picture

What's pathetic and sad .... I did a contract for a payday loan place once and asked about the logic of 300% APR loans 

Their response? -   "That's the low end of what we can get.  Try 1000% APR on loans."

 

Poor people are just farmed products for these people.  

Alex Truedman's picture

Let's say, 300% APR will only work if you renew a 2-week loan 26 times, which is clearly impossible due to the Best Practices which align the renewals to reasonalbe amount. Addiotionally, your state laws won't allow that. So, paying too much atterntion to annual rates is unreasonable whaen it comes to a 2-week deal? As one analytic said, you don't ask in a hotel how much would be the rent if you live for 2 month. Because it wouldn't be reasonable. Instead, you pay atterntion to the actual costs for 3 days you are staying. And you don't consider it a robery. Legit payday loan providers like Loansmob, for example, illustrate APRs because it's stated by the law and it's one of the rules of the Bets Practices. But that doesn't mean that your will have to pay 300% of the amount you are borrowing. You get to pay around 15% only, which is relatively cheap considering you have no other resources.

Soul Glow's picture

Amazing how they really do want every last penny.  They won't even save any for a rainy day.

Ignatius's picture

Loan sharking is a proven business model.

One need only establish the correct levels of interest and leg-breaking.

BLOTTO's picture

In my Canadian City (pop.150,000) there are at least 12 pay day loan shops and tattoo parlours spread across the City...

.

They cant afford to pay for food - but can afford full sleeve tats.

JMT's picture

do these places do business in US Dollars or do they still prefer Canadian currency??   

all-priced-in's picture

I have lived in the same place for 28 years - one area I drive through on a regular basis use to be a typical "small town" main street.  Small shops, mom and pop cafes, pizza joint, gas stations and a few grocery stores.

 

In the 4 miles stretch from my house to highway 225 had one - maybe two pawn shops. Not a single payday loan or title loan or cash advance place. 

 

Today there are at least 20 - payday loans - pawn shops - cash advance - title loan places in that same 4 mile stretch.

 

 

 

 

 

Uchtdorf's picture

Debt paves the road to serfdom. I'm in the auto industry where last month over 30% of all new car loans are over 7 years. The averages tell the story:

New cars: Average loan length: 67 months

Used cars: Average loan length: 62 months

What a deceptive facade of wealth we've spun for ourselves.

drendebe10's picture

Under the fudgepacker regime, ZH has one story after another about how bad it is and getting worse for the serfs and peasants while it flagrantly lives its celebrity grand imperial golf lifestyle. Either time for the guillotine or EBTs for everyone.  Hurry the fuk up and make ur choice.

Soul Glow's picture

STOCKS ARE A LEADING INDICATOR STOCKS ARE A LEADING INDICATOR STOCKS ARE A LEADING INDICATOR STOCKS ARE A LEADING INDICATOR STOCKS ARE A LEADING INDICATOR STOCKS ARE A LEADING INDICATOR STOCKS ARE A LEADING INDICATOR STOCKS ARE A LEADING INDICATOR STOCKS ARE A LEADING INDICATOR STOCKS ARE A LEADING INDICATOR STOCKS ARE A LEADING INDICATOR STOCKS ARE A LEADING INDICATOR STOCKS ARE A LEADING INDICATOR STOCKS ARE A LEADING INDICATOR STOCKS ARE A LEADING INDICATOR STOCKS ARE A LEADING INDICATOR STOCKS ARE A LEADING INDICATOR 

Government needs you to pay taxes's picture

Agreed, but what do stocks indicate?  Certainly not the same set of potentials that they did pre-QE.  Stock valuation has, with the advent of QE, added an important risk dimension: the strength and will of soverign global political cooperation.  In particular, this new element of stock valuation relies on large governments who otherwise would be in conflict to agree to continue not to question the worthiness of their conterparties fiat, which in many cases, is backed by a fiscal state of affairs that would be considered insolvent.  

yogibear's picture

IPOs gone wild.

Everyone is doing it. 

ebworthen's picture

Another sign post on the road to perdition.

Dr. Engali's picture

The 45 million people currently on SNAP since the "crisis" (ahem..... engineered theft) began tells me everything I need to know. 

centerline's picture

Believe it or not, I know a family that is living partially off of student loans.  They do not work.  Went back to school.  Community college.  Every semester or something like that they get a check from the student loan.  Instead of taking a full load of courses, they take a half load and spend the rest on cigarettes, liquor, etc.

MachoMan's picture

This is the dark side of student loans that no one wants to talk about.  A huge portion of them are simply for living expenses.  It's basically welfare for the middle class...  except of course the whole liability thing.

centerline's picture

The people I know have no intent of ever paying anything back.  Ever.  Is going to be interesting.

Steve in Greensboro's picture

All part of the progressive plan for making America a better place.

Step 1: insert government into a well-functioning market.

Step 2: government interferes with market and causes problems.

Step 3: use the problems to justify more government interference in the market.

Repeat steps 2-3 until economic collapse and impose 100% government control.

Pancho de Villa's picture
Pancho de Villa (not verified) centerline Jun 2, 2015 10:23 AM

Not hard to believe at all. I knew a single dude that registered every semester, got the maximum student loan amount but never even started any classes. He was a bit mentally challenged. He once "invested" $600 in lottery tickets; the "logic" being that 'there would be enough winners that it would add up to more than the original "investment"'.

 

The "good" news was that, after a LOT of scratching, he did recover about $27 of his original "investment".

NoDebt's picture

"You used to be able to get small loans for reasonable rates, below 36 percent"

Ah, those were the days when you could take out a small loan at reasonable double-digit rates.

Me?  I do all my "banking" at the corner 7-11 with money orders.  Not really, but there are plenty of people who do.

swmnguy's picture

I spent the 1990s doing that.  I was involved in a friend's business, and then discovered that he hadn't paid any employment or sales tax for 2 years and had listed me as his business partner (Minnesota allows oral-agreement partnerships without documentation).  So while I fought the IRS and the Minnesota Department of Revenue to force an agreement I could actually honor, I had no bank account.  It was about 1996 when banks here started to refuse to cash checks written on their own accounts, unless you had an account with them.  That's when my wife (common-law at that point) opened a savings account and gave me the ATM card.  I signed my paychecks over to her and deposited them into her savings account, drew the money out, and bought money orders to pay all my bills.

Once I finally forced the tax agencies to accept reasonable payment terms, and I grew in my career to be able to settle up with them, I was in my mid-30s with absolutely no credit.  That turned out to be the best thing that has ever happened to me.  I had grown accustomed to paying for everything with cash.  The last time I looked at my FICO score (well, one of them; there is no single be-all, end-all FICO score) it was 837.

Everybody should go through their 20s and early 30s "unbanked."

JMT's picture

Truely pathetic, doing 'banking' at 7-11 or walmart?? I mean one can open  an 'online checking' account where you get a debit card & can get direct deposit. Are people THAT stupid to pay $1.00 or whatever 7-11 charges for a money order?? 

Ghordius's picture

most of those loans belong to the category called usury and are forbidden as such in most of the countries of the EU

a few examples:

Austria (WucherArticles 154 and 155 Criminal Code Article 1 Law on Usury)

Belgium (Woeker/Usure: Article 494 of the penal code; ceiling: Article 1907ter BW, Article 87 No 1 WCK)

Bulgaria (Article 10 (3) of the Obligations and Contracts Act; Art. 294 Commerce Act)

Czech Republic: (LichvaSection 3 of the Czech Civil Code (Act. No. 40/1964) also in the criminal code (Act No. 40/2009 Coll))

Germany: (WucherArt. 138 al. 2 Civil Code; Art. 291 Criminal Code)

Greece: (Art. 404 Criminal Code)

Italy: (UsuraArt. 644 Criminal Code)

Latvia: (Criminal Law Section 201 “deprivation of liberty”)

Portugal: (Usuracf. article 282 of the Civil Code (“Código Civil”) and article 226 of the Criminal Code (“Código Penal”))

Romania: (CamatarieCriminal Code of 28 June 2004, published in the Official Gazette, Part I no, 575 of 29 June 2004)

Spain: (UsuraLaw of 23rd July 1908 «Ley Azcárate»)

note, though, this little nugget:

United Kingdom: "In the United Kingdom usury is commonly taken to mean lending at excessive or exorbitant interest, but it is not a term defined in legislation and there are no legal sanctions for the behaviour provided the lender is licensed by the regulator. However, a ceiling on the permitted level of interest that can be charged by Credit Unions in the UK does exist, and courts have the power to intervene in consumer credit contracts where the relationship between borrower and lender is considered to be ‘unfair’.(source: page 45)

MachoMan's picture

Usury is outlawed by many states in the US, but constitutionally, states are prohibited from crossing states lines with their laws...  so, any external banks can set whatever interest rates they choose...  and, since the rate they can charge in state A (usury laws) is much less than neighboring state B (no usury laws), then they'll HQ themselves in another state...

It wasn't until 2012ish that our usury law was gutted in my state...

bluskyes's picture

The Magna Carta addressed some aspects of usery. Though it didn't have to address too much, since it was forbidden if one was a member of the church.

10

If anyone has taken a loan from Jews, great or small, and dies before the debt is paid, the debt is not to incur interest for as long as the heir is under age, whoever he may hold from. And if the debt comes into our hands, we will take only the principal recorded in the charter.

11

And if anyone dies, and owes a debt to Jews, his wife is to have her dower and pay nothing towards that debt. And if there are surviving children of the deceased who are under age, their needs are to be provided for them in proportion to the dead man’s tenement, and the debt is to be paid from the residue, saving the service owed to the lords. Debts owed to others besides Jews are to be dealt with in like manner.

 

Totentänzerlied's picture

If you need a law banning it, that tells everyone that it's a problem, and continues to occur regardless of any law.

It's almost time, serfs, get out your prayer rugs and face toward Brussels.

Handful of Dust's picture

There's a Big Difference between a 'payday loan' and a 'bank loan.'

 

The anonymous banker doesn't give a flip if you ever pay back since it's all backed up by the very generous taxpayer via bailouts.

 

but the pay day loan fellow cares big time and will break your legs if you're a deadbeat.

Chuck Knoblauch's picture

Auto video commercials are really fucking annoying.

I don't even remember what the fuck they were selling.

I just know it pisses me off.

q99x2's picture

That is a big rise in poverty.

ajkreider's picture

Ok, everyone.  Let's do a critical thinking exercize.  What does one need, that there are more of now than in 2011, in order to have a payday loan or a tax refund loan?   You need to have a . . . . .

Colonel Klink's picture

An iPHONE!  What did I win?

Mike Honcho's picture

When I cross the river leaving downtown to work, for two miles its is pay day, title loans, fast cash, oh and dollar stores and fast food, a grotesque scene.

Coopster's picture

Good article, but I believe math is wrong, can't add up percentage of each group to get a total percent.

Let's say there is 100,000 people in each salary group:

$30,000 - $49,999   23% is 23,000

$50,000 - $74,999   14% is 14,000

over $75,000   11% is 11,000

Total number who used payday loan, etc. is 48,000.  Total population is 300,000.  So 48,00/300,000 is 16%.

 

Conax's picture

"I hate graveyards and old pawn shops,

for they always bring me tears.

I can't forgive the way they robbed me,

of my childhood souvenirs."

~John Prine, "Souvenirs"

22winmag's picture

A loanshark by any other name...

Totentänzerlied's picture

"Forty-serven pecent of respondents say they either could not cover an emergency expense costing $400, or would cover it by selling something or borrowing money,” reads this year’s annual report."

How many of these respondents are still purchasing most of the following: liar-loan cars, fast food/takeout/delivery every single day, junk food, new clothes, gadgets not limited to smartphones, tattoos, every drug you can think of including all forms of alcohol and tobacco, housepets, and movies/maganizes/music/games/TV shows?

How many have children they self-evidently cannot and never could afford?