People should also be aware of the risks of “old-school predatory lending,” Williamson added, including payday loans, auto-title lenders and rent-to-own businesses. Payday lenders in particular tend to settle in communities of color, Williamson said, and are marketed as easy ways to get money. Often these loans come with high rates.
“They have an established presence in the community, and in many ways low-income consumers need to look beyond that to determine if there are other, more sustainable ways to get a small loan,” said Williamson.
When credit becomes harder to come by during a recession as lenders limit borrowing, people will be tempted to turn to abusive products and worse terms because it seems like whatever is available, Friedline said.
Credit card issuers previously reduced credit limits during the COVID-19 pandemic and the Great Recession, a measure that may help them avoid losses from consumers unable to repay debts, according to a June report from Consumer Financial Protection Bureau. However, these discounts can significantly increase usage, or consumers maxing out their cards, which in turn can lower credit scores and make it even more difficult to borrow.
“People on low incomes are short on money, so you may know you’re being scammed, but what other options do you have?” Friedlin said.
Still, she said to watch out for promises of “a new product you’ve never heard of before that’s positioned as something that’s really going to help you,” like payday advances offered by an employer, which may come with a fee. and have worried some consumer advocates.
Given these vulnerabilities, Friedline added, policymakers could put in place more regulations and consumer protections, like interest rate caps on small loans. “The exploitation that we think is likely to happen doesn’t have to happen,” she said.
Of course, not all forms of support are scams. There are government programs that will help cover or reduce utility bills, for example. Consumers can sign up for Federal Trade Commission email alerts to stay up to date on money-saving tips and scammers taking money.
People can contact the Consumer Financial Protection Bureau with complaints about financial services, Friedline noted. The agency also offers several guides for those looking to buy a home, maintain their financial health during emergencies and disasters, or plan for retirement.
Collins, of the University of Wisconsin-Madison, noted that it helps to keep an open dialogue with family members about the financial situation. It’s normal to feel stressed about your budget, but there’s no point in ignoring the problems.
“The more people can talk about this stuff, whether it’s virtually or with friends and families or others — just so it’s less taboo — that’s important,” Collins said.
(END) Dow Jones Newswire
10/26/22 1959 ET
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