The Unemployed on the Payday Loan Treadmill

The Los Angeles Times reports that payday lenders are feasting on the jobless, taking huge chunks of their unemployment checks in exchange for advancing them money for a week or two.

No job? No problem. A typical unemployed Californian receiving $300 a week in benefits can walk into one of hundreds of storefront operations statewide and walk out with $255 well before that government check arrives — for a $45 fee. Annualized, that’s an interest rate of 459%.

California limits loan sharks to a $15 fee for every $100 lent, the LAT says, or that APR would be even higher. Forty-five bucks of a $300 check is a lot. That helps put people behind so they have to borrow again and again.

Of course, the payday lender isn’t the only one who has people on the treadmill, and the LAT is good to note this:

Ed Reyes, a Los Angeles resident who lost his job in retail about six months ago, said he has had to take out payday loans three times since becoming unemployed. The advances on his government check, he said, have helped him pay his household bills before late charges accrue.

Now that’s what you call synergy in the poverty business! Paying fees to avoid fees.

The paper also finds a good quote from a payday-loan branch manager:

Most unemployed borrowers, she said, come in twice a month and often appear more desperate than other clients.

“They need it more,” she said. “When we tell them they need to wait because they forgot their checkbook or some other snag, you see a sadness in their eyes, kind of like it’s all piling up, the frustration.”

And it’s always good to point out that a huge percentage of the unemployed don’t get squat: “1.4 million jobless residents are getting unemployment benefits, out of a pool of some 2.3 million who are unemployed,” the paper says. And that doesn’t include the underemployed or those who have quit looking for work.

There’s a little bit of puffery in the story that we could do without. The lede calls the practice “new” but says three paragraphs later that it “has grown as the jobless rate has increased.”

And this sourcing is hedged way too much:

Many payday clients pay off their loans and immediately take out another, or borrow from a second lender to pay off the first, and sink ever deeper into debt. Typical customers take out such loans about 10 times a year, by some estimates.

By whose estimates? And does “typical” mean average or median or what? That kind of imprecision and weak sourcing waters down a nice story.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.