People should also learn about the risks of “old-school predatory lending,” Williamson added, including payday loans, car title lenders and rent-to-own businesses. Payday lenders in particular tend to be based in communities of color, Williamson said, and market themselves as easy ways to get cash. Often those loans come with high rates.
“They have an established presence in the community, and in many ways low-income consumers have to look further to find out if there are other, more sustainable ways to get a small dollar loan,” Williamson said.
When credit becomes more difficult to obtain during a recession, as lenders limit lending, people will be tempted to turn to exploitative products and worse terms because it seems like that’s all that’s available, Friedline said.
Credit card issuers previously lowered credit limits during the COVID-19 pandemic and the Great Recession, a move that can help them avoid losses from consumers who can’t pay their debts, according to a June report from the Bureau Consumer Financial Protection. However, those reductions can significantly increase utilization, or consumers can max out their cards, which in turn can lower credit scores and make borrowing even more difficult.
“Low-income people have little money, so you may know you’re being scammed, but what other options do you have?” Friedline said.
Still, he said be wary of promises of “a new product you haven’t heard of before that’s positioned as something that’s going to really help you,” such as paycheck advances offered by an employer, which can come with fees. and have worried some consumer advocates.
Given those vulnerabilities, Friedline added that policymakers could implement more regulations and consumer protections, such as state caps on interest rates for smaller loans. “The exploitation that we think is likely to happen doesn’t have to happen,” she said.
Of course, not all forms of assistance are scams. There are government programs that will help cover or reduce utility bills, for example. Consumers can sign up for email alerts from the Federal Trade Commission to stay up-to-date on money-saving tricks and money-grabbing scammers alike.
People can contact the Consumer Financial Protection Bureau if they have a complaint about financial services, Friedline said. The agency also has several guides for those looking to buy a home, maintain financial health during emergencies and disasters, or plan for retirement.
Collins, of the University of Wisconsin-Madison, said it helps to have an open dialogue with family members about financial circumstances. It’s normal to feel stressed about one’s budget, but it doesn’t help to ignore problems.
“The more people that can talk about this kind of thing, whether it’s virtually or with friends and family or other people, just to make it less taboo, that’s important,” Collins said.
(END) Dow Jones Newswires
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