Payday Lenders Didn’t Get a Boost From the Pandemic’s Hard Times
Federal relief money helped people avoid high-rate loans, while bolstering community banks.
For payday lenders, the pandemic could have been a once-in-a-century event for generating new customers. A bad economy can force people to turn to high-cost lenders for quick cash. But the story turned out differently this time. Trillions of dollars of federal relief, including direct cash payments and enhanced unemployment benefits, have had the opposite effect: reduced demand.
The federal efforts could upend an industry that’s preyed on low-income Americans, making small-dollar loans payable upon the receipt of a next paycheck, Social Security check, or unemployment benefit. With interest rates as high as 400% annualized, the loans rake in more than $9 billion a year in fees and interest, according to Pew Charitable Trusts, a nonprofit research group. Payday loan shops are as common as fast-food joints in struggling towns across the U.S., and there are also many Internet-based lenders. But demand for small-dollar loans fell 67% in the midst of lockdowns last spring and early summer, according to the Online Lenders Alliance trade group, and has yet to recover to pre-Covid levels.