Unbanked People Feed the Payday Loan Store Problem

by M. Barnes
(Pennsylvania)

Many people in our community have lost their bank accounts because of one bounced check. Other older people just don't trust banks, either because their parents lost money in the big Depression or because they think minorities get worked over at banks. Some people cannot afford the required minimum balance not to have a big fee subtracted from their account that results in a balance of zero.

Payday loan stores have been starting up all around us, and apparently they are successful because more keep coming. They make the neighborhood look seedy, like everybody is on the brink of bankruptcy and living really paycheck to paycheck.

When I looked into this problem, apparently it has a name. It is called unbanked. The name is insane (would I be called unshopped if I didn't buy anything today). It doesn't matter though as much as the dang payday loans. The interest rate is really, really high. Like it would take $300 to pay back a $25 loan or something.

I thought there was a usery law but I guess not in my state. Maybe these little storefronts have figured out a way around the law.

There has to be a way to solve this problem. It seems to me like it would be a good idea for banks to be required to give everyone overdraft protection. The government could guarantee the repayment if someone wrote a bad check, or people who have bounced a check before would be required by the bank to have only a debit card kind of account where the account balance was checked every time before the card was accepted.

That seems like one good solution. Mostly I just think the payday loan stores need to be put out of business just like other loan sharking schemes have been made illegal. If I had to pay 300% interest, I never would be debt-free like I am today.

Editors' reply:
We couldn't agree with you more. As a temporary measure, until your state acts to prevent these practices, you can try requiring industrial zoning for payday lending, if you think you might have more of these establishments moving in.

The solution to these is related to strong community development financial institutions (CDFIs) as the alternative. See our answer to what is a CDFI.

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