TRUMPED! Why Payday Lenders Must Be in Crosshairs of Financial Literacy Teachers
By Brian Page
December 7, 2016
Donald Trump is a singular force that promises to reshape the economy in ways that every student would do well to understand. From tax policy to student loans to consumer protections, the personal financial world under a Trump administration will look nothing like it has under President Obama. Starting now, financial literacy teachers must adjust their lessons to reflect this new reality. In our series TRUMPED! award-winning personal finance school teacher Brian Page offers guidance. This is the third in the series.
PAYDAY LENDERS IN THE U.S.outnumber McDonald’s restaurants by a third. They are the fast-money choice of millions of unbanked adults, and under the Trump administration will enjoy more room to operate.
These often-predatory lenders charge effective interest rates of 400% and more, and in so doing contribute to the debt spiral that keeps so many economically disadvantaged people from improving their financial picture. Financial educators, especially those in low- and middle-income neighborhoods, must make time in the classroom to explain the costs of this kind of financing.
Payday lenders have been under attack from regulators in recent years. Not all of them are predatory and some are even trying to do right by their customers. But the vast majority charge exorbitant fees. Often, students leaving high school and heading straight to work turn to them for quick cash.
Leading the charge has been the Consumer Financial Protection Bureau, authorized through Dodd-Frank legislation in part to oversee the alternative finance world. This was a response to lax oversight that contributed to the 2008 financial crisis. The CFPB’s most recent step was a proposal this year to require payday lenders determine their customers have the ability to repay their debts before lending to them.
That proposal and other safeguards are much less likely to see the light of day under Trump, who has vowed to dismantle Dodd-Frank and curb the authority of the CFPB. It is critical that students understand the hazards of the payday lender option.
Teachers can draw on many free and unbiased resources to help in these lessons. The Federal Trade Commission has a number of articles and a helpful video hook. The CFPB has a resource for students and teachers to address specific questions.
I’ve found it is best for students to experience the cost of fringe banking services first-hand. A few years ago, I took my class on a field trip that The New York Times covered. We visited a pawnshop and several payday lenders. I had been showing my students the math: A $200 loan with a 15% fee ($30) was to be repaid in two weeks, translating into an annual percentage rate of 390%.
But the hands-on experience of stepping inside this world left the deepest impression. My kids saw what desperation looks like. None of my students used these services that day. That wasn’t going to happen on my watch—and I hope they never do.