With 7.5 percent of its population patronizing payday lenders, rent-to-own shops, refund anticipation loans, and pawn shops, Maine more than any other New England state is finding its residents trapped in a perpetual cycle of debt.
According to analysis performed by the Federal Reserve Bank of Boston, the 7.5 percent rate of alternative credit use in Maine from July 2010 to June 2011 is nearly twice the average for the region as a whole and more than 25 percent higher than the national average of 6 percent. Use of payday outlets, pawn shops, and rent-to-own stores even increased among Mainers who have some form of a bank account. About 0.4 percent of Maine households utilize payday loans, about 2.9 percent use pawn shop loans, and roughly 4.8 percent turn to rent-to-own products.
Urban Institute senior fellow Gregory Mills, who penned the Boston Fed report, says alternative credit providers are attracted to Maine because of the high number of households with annual incomes in the range of $15,000 to $30,000. Along with the lower income is a lack of financial literacy. Mills says most customers fail to realize just how much the exorbitant interest is costing them. Payday lenders in the state can charge up to $25 for loans of $250; Maine pawn shops charge as much as 300 percent annually; and while rent-to-own businesses may charge as little as 50 percent interest per year, it is still a significant added cost. "This speaks to a lack of understanding of debt and the ability to manage debt," according to Garret Martin of the Maine Center for Economic Policy. "These businesses take advantage of that."