Predatory Loans Offer Tempting Stopgap for Federal Workers Missing Second Paycheck

Short-term, small-dollar loans are often high interest and predatory in nature — and attractive to the many Americans who face dire financial circumstances

While many struggle to make ends meet during the shutdown, some have turned to small-dollar loans to fill the financial vacuum that comes as a result of the ongoing battle raging more than 1,000 miles away in Washington, NBC News reported

Because of a lack of regulations surrounding loans and the Trump administration rescinding some Obama-era protections, the annual percentage rate for payday loans in Missouri are more than 400 percent on average, according to a study by the Federal Reserve Bank of St. Louis.

Prior to the shutdown, a 2018 Federal Reserve report found that 40 percent of Americans could not afford an unexpected expense of $400. Without an agreement between Congress and the White House, those loans could become more appealing as the shutdown continues to delay payments to federal workers. 

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“Low income borrowers are very vulnerable to payday loans,” said Deborah Goldstein, the executive vice president of the Center for Responsible Lending. “They may think they don’t have other options and the payday lenders make it sound like a cheap loan and low barrier to entry when it is very expensive. Their business model is based on people having to take out more loans because of the high expense.”

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