By: Javi Calderon
According to a recent study, over 275,000 low-income families in the state of Virginia are using financial products like payday loans, car title loans and pawnshop loans to pay for a myriad of expenses. From utilities bills to paying down credit card debt, rent to medical costs – nearly 10% of all families in the state are using these short-term credit loans simply to get by.
Low-income borrowers typically turn to these types of solutions due to poor credit and a lack of trust or familiarity with traditional banking options. However, 90% of borrowers do have traditional bank accounts. It is estimated that almost 25% of Virginia households cannot regularly afford to pay for basic necessities, while 28% of Virginia families live without savings or other assets.
The study also shows that the use of alternative financial products is more prevalent in black communities, as 21% of black families in Virginia have turned to one of these options for quick cash. Over a quarter of all short term loan lenders in Virginia operate in predominantly black areas. The study did not opine whether these businesses actively and purposely set up shop in black neighborhoods, or if the residents are more inclined to use them simply out of convenience.
Virginia is one of 22 U.S. states that permit all kinds of cash advance/ alternative credit loans. 26 states in the U.S. have banned auto title loans, while 13 have banned payday advance loans.
Though both payday loans and car title loans are legal in the state, they are regulated. Laws went into affect in October of 2010 to curb auto title loans, while payday loan regulations instituted in 2008 have managed to reduce payday loan activity from $1.3 billion down to around $200 million last year, according to the Virginia State Corporation Commission.
The study’s author believes that while the study proved that Virginians use, and in fact, need these types of financial products, there may be better ways to meet those needs.
