The recently released Ferguson Report emphasizes the negative impacts of predatory lending on neighborhoods like Ferguson, Missouri:
While low wages make it difficult to escape poverty, predatory lending often makes poverty worse. Low-income households in Missouri with limited access to credit frequently seek high-cost “payday” loans to handle increased or unexpected emergency expenditures. These lenders, who are often the only lending option in low-income neighborhoods, charge exorbitant interest rates on their loans. University of Missouri research found that in Missouri, the average annual percentage rate (APR) of interest for payday loans is 444.61 percent (University of Missouri, 2012). That same report found that high-cost, predatory lenders concentrate in low-income communities, and that Missouri’s lax regulatory environment has allowed payday lending to thrive. Further, compared to our eight contiguous states, Missouri has the highest APRs (University of Missouri, 2012). Capping the maximum APR at 36 percent and changing repayment terms, underwriting standards, and collection practices can protect borrowers from predatory lending.