Borrowers Beware! Payday and Other Storefront Loans: Convenient but Costly

By Brent Adams

Updated 3-31-20, 10am

Woodstock continues to advocate for policies that would protect consumers from predatory loans that cost 300% APR or more. The average APR on a payday loan in Illinois – before COVID-19 – was 296%.

Research shows that loans with triple-digit interest rates do not solve consumers’ cash shortfalls. Instead, these loans trap them in a cycle of debt, worsening their financial situation. More than four out of five payday loans are re-borrowed within a month, and the majority of payday loans are borrowed by consumers who take out at least 10 loans in a row.

In the midst of this historic crisis, what can be done to curb the abuses of predatory high-cost, short-term loans? 

In addition to a federal bill to permanently cap loans at 36% APR, Woodstock and our allies support a bill that would at least temporarily cap loans at 36% APR. Times like these reveal why a 36% cap is in the best interests of consumers and the overall economy. A cap would help prevent unscrupulous lenders from taking advantage of this or any other crisis.

As with anything that must pass Congress and be signed by the President, a legislative fix to the predatory lending problem won’t happen overnight, and some households are already experiencing a cash crunch due to the COVID-19 crisis. Many more families see a cash crunch on the horizon or are at high-risk for a major loss of income in the near future due to job loss or due to having to close their small business.

Obtaining a loan from a financial institution – even a high-cost payday, installment, or auto title loan – may seem like a necessary evil under the circumstances, but a loan, while helping to meet short-term needs, may make a household’s financial crisis worse and make it last longer than if they took some different steps before and when seeking a loan.

Before seeking a loan

  • Consumers should contact their (1) lenders, creditors, loan servicers, and (2) the companies to whom they make automatic recurring payments to request “hardship relief.” They should be prepared for potentially long hold times on calls.  They will be asked to explain their hardship. In some cases, the call is enough and no explanation is needed, but they should be prepared to provide more detail. These steps won’t put money in their pockets, but will potentially stave off bills needing immediate payment. This Forbes article, which is being continually updated, lists the banks that are offering hardship relief.
  • Consumers should seek assistance from friends and/or family. If ever there was a time to ask for help, now is it. Apart from giving them cash, a friend or family member can help cover the cash crunch in other ways, such as by buying groceries and dropping it off at their loved one’s home.

Financially secure consumers should consider offering to Venmo, PayPal, or Zelle money to a friend or family member who is experiencing a financial hardship. Rather than just saying, “here’s some cash,” they can make the donation for a specific purpose, such as “here’s some cash to buy groceries today.” Doing it this way may make the friend or family member more likely to accept the assistance. 

When seeking a loan

If the above methods don’t stave off the need for immediate cash, consumers should do research to learn about low- or no-cost “crisis loans.”

Avoid any product that charges more than 36% APR.

Any loan offered in connection with your anticipated stimulus payment, e.g., “Economic Stimulus Anticipation Loan,” is likely a RIPOFF.  Please report it to us.

For consumers that do not have a bank account, now is the time to get one. Hardship relief will be paid electronically. The good news is that some banks have safe and affordable checking accounts called BankOn accounts that can be opened online, and consumers who have been denied checking accounts by banks due to financial issues can be approved for these accounts.

For consumers who have bank accounts, here are some steps to get started:

  • Consumers should call their bank or credit union or visit their financial institution’s website to find out whether they are offering loans specifically tailored to folks in a financial crisis due to COVID-19.[1] As mentioned above, this article, which is being continually updated, lists the banks that are offering hardship relief.
  • Consumers should find out about crisis-related loans offered by Community Development Financial Institutions (CDFIs). CDFIs make loans and investments to promote community development. Presently, there are three CDFIs in Illinois that make consumer loans. In alphabetical order:
  • For consumers with credit cards, the credit card company may be offering cash advances on favorable terms for persons experiencing hardship. Consumers should check the credit card’s website and/or contact the credit card company to find out.  Under normal circumstances, a credit card cash advance may have a high APR but one that is substantially lower than a payday or auto title loan.
  • Some nonbank, online lenders have better rates and terms than most storefront lenders. The lenders that are part of the Marketplace Lending Association adhere to responsible lending standards that include charging at or below 36% APR. Nerd Wallet has a function that allows consumers to compare loan products.

Share experiences

  • If you learn about good or bad experiences with a financial institution, let us know about it! 
  • If you come across a good resource that is not listed here or have any feedback about the information provided here, let us know.
  • This is a constantly evolving situation. Sharing knowledge will help us protect our families, communities, and country.

From all of us at Woodstock, Be Well.


[1] Federal bank regulators have declared that banks will receive credit under the Community Reinvestment Act for making lower-cost loans to low- and moderate-income customers.