Payday Lenders Giving Advances on Unemployment Checks

Los Angeles Times
March 1, 2010
Faturechi, Robert

A new trend in payday loans has surfaced: lending to borrowers covered by unemployment insurance. In California, residents who receive $300 a week in jobless benefits from the government can obtain a loan for that amount -- including a $45 fee -- at annual interest rate of 459 percent. These exorbitantly priced loans do more damage than good, as they send the unemployed even deeper into debt. According to Ginna Green, a spokeswoman for the Center for Responsible Lending, the lenders "market the product to give the illusion of assistance, but instead of throwing them a life jacket they're throwing them a cinder block." California's unemployment rate hit 12.4 percent in December, and a clerk at Ace Cash Express in Van Nuys said that approximately a quarter of his recent first-time borrowers were using unemployment checks as proof of income. Payday lending is minimally regulated by the state; but lenders do not have to check sources of income; and attempts at stricter legislation, such as lowering the APR, have proven unsuccessful. Payday lenders have found a window of opportunity in the job crisis because making loans to people receiving unemployment is no riskier than making a loan any other recipient because California benefits are relatively high.
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