This is crazy!
According to a front page article ($) in today’s Wall Street Journal, payday loan companies are targeting the elderly and anyone else who receives a monthly Social Security check. It’s a racket. Here’s the typical scenario:
Grandpa visits a payday lender for a small loan. The payday lender is happy to oblige but requires Grandpa to set up a bank account with some bank and have his Social Security check deposited into the account. The bank will then send the money to the payday lender. The lender will then collect its fees and will give whatever is left over to Grandpa. In other words, by agreeing to these terms, Grandpa has given some payday lender complete control over his Social Security check.
The following story from the article illustrates just how easy it is to get into trouble:
In November 2002, when Melvin Bevels was short of money for groceries and rent, the elderly man visited a Small Loans store in Sylacauga, Ala., and borrowed money — he thinks it was $200. Small Loans is part of a sprawling network of more than a hundred lenders in four states, including Georgia, Florida and Louisiana, owned by Money Tree Inc., a closely held Bainbridge, Ga., firm.
Every month for nearly four years, Mr. Bevels, who is known around town as “Buckwheat” because of his thatch of yellow-white hair, rode his motorized mobility scooter to Small Loans to pick up his “allowance,” which was sometimes as little as $180 a month, he says.
In a written statement, Money Tree’s general counsel, Natasha Wood, declined to comment on Mr. Bevels’s case but said: “Anyone who sets up a direct deposit arrangement with Small Loans Inc. does so completely voluntarily.”
Mr. Bevels, who believes he’s 80 but isn’t sure, quickly lost control of his finances. When his utilities were shut off, a neighbor gave Mr. Bevels water in a plastic jug and ran an extension cord to Mr. Bevels’s trailer a few hours a day to power his nebulizer, which delivers aerosol medication to people with chronic lung conditions. Mr. Bevels was facing eviction when his trailer burned down, leaving him homeless.
A county social worker arranged for Mr. Bevels to move to public housing and got his Social Security benefits redirected to a local bank. When Small Loans sued Mr. Bevels for repayment in small-claims court in Talladega County, Ala., a legal-aid attorney headed to court. The judge threw out the case when the lender failed to appear with documentation for the loan.
“It just isn’t fair, what they do to old people,” says Mr. Bevels, crying quietly. “It isn’t right.”
Ms. Wood, the lawyer for Small Loans, said in her statement: “Small Loans Inc. does not file suit against anyone because they move their direct deposit service elsewhere.”
No regulatory agency tracks how much Social Security money is going to lenders as repayment for payday loans. A 2006 study by the Consumer Federation of America found that one-fifth of those without conventional bank accounts are receiving their government benefit checks through nonbanks, including payday lenders that also operate as check-cashing stores.
Social Security recipients are supposed to enjoy more protections than other borrowers: Federal law says that creditors can’t seize Social Security benefits to repay debts. Small Loans and two banks with which it has partnered say their arrangements don’t violate any laws. But critics say such arrangements effectively thwart the intention of the law. Social Security recipients can not only lose their benefits, but face lawsuits, harassment and even jail.
What I don’t understand from the article is where all of Mr. Bevel’s money was going. Was he taking out more and more payday loans? My guess is that if he needed to borrow $200 in the first place, he probably didn’t have the money to pay it back and therefore got stuck in a cycle of borrowing, which is EXACTLY where the payday lender wanted him. The really sad thing is that unless the payday lender was lying to him (which wouldn’t surprise me), Mr. Bevels agreed to the terms of the loan.
BOTTOM LINE: Don’t sign your Social Security check over to ANYONE! Don’t give ANYONE direct access to your money. Most important of all: STAY AWAY FROM PAYDAY LENDERS!