President Obama will speak today in Birmingham, Alabama, and up until a few days ago, many of my friends wondered 'why.' Why a city in the South, and why specifically, Birmingham, Alabama. And now I understand.
Alabama is a top 10% state in the United States for the proliferation of payday loan operations. Meaning, there are only a couple places in the nation where there are more payday lenders operating any one place, than in the state of Alabama. And this is not good for anyone, but not for obvious reasons.
I have nothing against payday lending, and in fact I think that done reasonably and correctly — there is actually a role for them to play in society.
If you work a job and are like 70% of all Americans today, you live from paycheck to paycheck. Not Black Americans, or white, Latino, Asian, Indian or other Americans — but all Americans. As I note in "How The Poor Can Save Capitalism: Rebuilding the Path to the Middle Class," the majority of Americans will tell you that they have"too much month at the end of their money."
If you work a full time job, and little Johnny gets sick, and you don't have say, medical insurance, you may have to take rent money and use it for Johnny's medical bill. And when rent comes due, you are stuck between a rock and hard place. This is where payday lending plays an honorable role. They allow you in this example to take an advance, effectively, on your paycheck — to cover an immediate expense. And you also, being reasonable and grounded and disciplined, take your next pay period or two to repay that payday lender in full.
Even if you have to borrow it from a friend or relative, you tell yourself, you are going to pay it off. Whatever it takes, to pay that payday loan off. Because the annual compounded interest will approach 500%. Yes, you read that correctly.
Read the complete article on LinkedIn here.