Guest Commentary

Elliott Clark: Beware the debt trap of payday loan firms

Elliott Clark made the mistake of walking into a too-good-to-be-true debt trap from which it took five years and approximately $30,000 to escape.
Elliott Clark made the mistake of walking into a too-good-to-be-true debt trap from which it took five years and approximately $30,000 to escape. The Associated Press

“Quick Cash for a New Year.” “Easy, instant holiday loan$.”

Some neighborhoods got lights and wreaths over the holidays. My neighborhood was decorated with signs like these, in payday lending storefronts, promising a way out for the needy and the desperate. Now the holidays are over, and some people are discovering that those signs probably should have said, “Warning: Financial Quicksand.”

Believe me, I know.

I made the mistake of walking into a too-good-to-be-true debt trap from which it took me five years and approximately $30,000 to escape. The fact was, the option was there and I had nowhere else to turn. I am a disabled Vietnam vet — Marine Corps. I had two children in college. My wife broke her ankle in two places and couldn’t work. The light bill was due. The mortgage was due. The girls needed textbooks. Something had to give and it did. Me. I took out a payday loan. Then another, and another.

We owe it to others to keep them from making the same mistake and to provide them with decent alternatives.

This will take more than a warning sign. It will take action from the government. My faith in our state government to do the job has been shaken by experience. The campaign cash payday lenders dispense appears to have done what it was meant to do — shut down opposition to payday lending. The average interest annual interest for a payday loan in Missouri is 455 percent.

The good news is that the federal government, specifically the Consumer Financial Protection Bureau, is working on a new set of rules that, if done right, could curb the worst abuses of payday lenders. Such legislation has the potential to open up the market to responsible credit products. I could have used one.

This kind of repeat borrowing is how payday lenders make their money. They advertise a two-week loan, but the average borrower is still paying it off six months later. The lender has access to your bank account. They get paid back whether or not your lights stay on or your mortgage gets paid.

A $300 loan costs on average $345 the first time you get one. When they go into your account to get paid back after two weeks, you are $45 poorer, with nothing to show for it. The bills still need to be paid. So you go back for another loan. This is not a side effect of payday lending — it is the business model of payday lending.

Eventually, I was working full-time just to pay off the lenders. I worked hard all my life, served my country, but somehow I still lost my home and my car. I felt helpless and hopeless. I made it through by the grace of God and can now hold my head up with dignity, but I cannot sit by and allow others to make the same mistake.

I urge you to join me in this battle, to write to your senators and members of Congress — including those, like Rep. Kevin Yoder, who take payday lending campaign cash. Tell them we need a strong payday lending rule that requires payday lenders to make the same kind of responsible lending decisions regular banks do every day — to consider a borrower’s ability to repay before making a loan. With a few simple changes, we could make a marketplace where it was profitable to make small dollar loans that people could actually pay off if there was an emergency and they needed the help. That’s the short game.

The long game is to make a better world where a broken bone would not bankrupt a hard-working family. In this better, fairer world, a payday lender wouldn’t advertise quick Christmas cash. They wouldn’t be able to make a living because no one would need them.

Elliott Clark of Kansas City is a husband, father, Christian, Marine Corps veteran and volunteer with Communities Creating Opportunity.