Thursday, July 27, 2006

Here is scary news: the American public now has a negative net savings rate. Home prices, medical care, and college tuition are all growing faster than wages, while debt has become increasingly pervasive among American households.

Individuals are aware of the problem, as 82 percent now recognize household debt as a serious dilemma, according to a recent survey sponsored by the Center for American Progress. So, why isn't the issue atop the agenga for national policymakers? Where do they weigh in when it comes to instant payday loan use?

The Center for American Progress survey found that both Republicans and Democrats (by more than 80 percent margins) agree that:

• There should be more incentives for people to save money
• Online payday loan lending companies should provide simple and uncomplicated language that explains their charges and fees
• More education and counseling should be provided to customers
• There should be caps on the rates of interest that credit card companies charge

So why have no real efforts been made on these fronts? The Center for American Progress has launched an effort to draw broader attention, especially among lawmakers, to the issue of household debt and overall quick payday loan use.

At a one-day conference, Debt Matters: Raising The Profile Of Household Debt In America, panel discussions were held to describe the current state of American debt: public attitudes toward it, how payday advance lenders are harming low-income workers and members of the armed services, and trends and possible solutions to credit card debt.

The range of topics covered by the conference underscores just how far-reaching the effects of household debt on Americans can be. The issue affects all (low-, moderate- and even high-income earners) by making it difficult to send children to college and fund retirement accounts.

An issue with payday loans: For many workers at the bottom of the income scale, no fax payday loan lending often serves as a necessary bridge between the rising cost of living and stagnant wage growth. Cash advance lenders recognize this fact and, relying on an uninformed customer base, often take advantage of their clients, charging average annual interest rates upwards of 400 percent.

The Center for Responsible Lending has found that 99 percent of payday loans go to repeat borrowers and 91 percent of payday lenders' business comes from borrowers who borrowed more than five times in a year. Without access to low-cost lending, many low-income workers have little choice but to continuing paying exorbitant fees and interest rates to these providers.

But debt is not just a problem for those at the bottom of the economic ladder. For everyone, credit card debt has grown as a problem. In recent years, credit card issuers have been enjoying a surge in revenue.

Fine print and complicated language can obfuscate the terms of credit agreements; and as a result many Americans are hit with unexpected fees and increased interest rates on loans and credit. Hence, the appeal of payday cash loans to alleviate such an issue.
Unfortunately, taking out larger loans and going deeper into debt is one strategy that Americans have used to deal with this dire situation. The marketplace has responded accordingly. Lenders have in recent years created more ways to lend money (like subprime home loans), increased fees charged to consumers, and insistently advertising their products.

Changes of some kind is needed at the national level.

This entry was posted on Thursday, July 27th, 2006 at 7:36 am and is filed under National, Consumer Debt.