Payday Loan Use Expected to Spike Among SSI Beneficiaries as Economic Downturn Continues

As the economic devastation from the coronavirus pandemic continues to mount, new research suggests that many Supplemental Security Income (SSI) recipients will turn to payday loans to meet basic living expenses, much to the distress of consumer advocates. 

Each year, about 12 million Americans take payday loans, a form of short-term, high-interest loan for people who are otherwise unable to obtain loans through traditional banking services. Although meant to assist people in emergency situations, such as when they are behind on rent or utilities, these loans are widely considered exploitive and serve to further trap low-income people in debt. Payday loans are effectively banned in 20 states, including New York, primarily through interest rate caps and usury laws.

Now,  a report from the Retirement and Disability Research Consorium reveals that SSI recipients use payday loans at a significantly higher rate than the rest of the general population, particularly during economic hard times.

In 2016, the most recent year that data is available, about 4.2 percent of SSI recipients took out payday loans, compared to 3.42 percent of the general population. These numbers, however, represent a significant drop from 2010, during the last recession, when 9.1 percent of SSI recipients reported using a payday loan, including 22 percent of SSI recipients age 65 or younger. Meanwhile, even at that time, just 3.85 percent of the general population reported using payday loans.

Even more striking are the report’s findings on why SSI recipients so often resort to payday loans. While the general population surveyed reported that convenience was the number one reason they used payday loans, 38 percent of SSI recipients said they used them for “emergency/needed quick money.”  Loans can be particularly damaging for SSI recipients because they count towards the $2,000 resource limit if not spent in the month of receipt.

Amid the latest recession, the federal Consumer Financial Protection Bureau (CFPB) is widely expected to soon finalize the first set of federal regulations for the payday loan industry, although the rules are expected  to be significantly weaker than the agency’s prior proposal.

Under an Obama-era initiative, the CFPB originally proposed, and finalized in October 2017,  regulations requiring payday lenders to, among other things, minimize the number of consecutive loans that borrowers could request and require lenders to take steps to ensure that borrowers would be able to repay the loans. The new regulations were originally set to go into effect in August 2019, but in February 2019 the Trump administration scrapped the prior rules and announced that it will be issuing final regulations that, among other provisions, will  eliminate the requirement that payday lenders establish a borrower's ability to pay.   

Click here to read the full Consortium report, “The Impacts of Payday Loan Use on the Financial Well-being of Social Security Beneficiaries.”