People should also educate themselves about the risks of “old school predatory lending,” Williamson added, including payday loans, auto title lenders and rent-to-own companies. Payday lenders in particular tend to set up businesses in communities of color, Williamson said, and are marketed as easy ways to get cash. These loans often have high interest rates.
“They have an established presence in the community, and in many ways, low-income consumers have to look past that to see if there are other, more sustainable ways to get a small-dollar loan,” Williamson said.
When credit becomes harder to get during a recession as lenders limit borrowing, people will be tempted to turn to exploitative products and poorer terms because it seems like everything is available, Friedline said.
Credit card issuers have previously reduced credit limits during the COVID-19 pandemic and the Great Recession, a move that may help them prevent losses from consumers who can’t pay off their debts, according to a June report by the Consumer Financial Protection Bureau. However, these reductions can significantly increase utilization or consumers may max out their cards, which in turn can lower credit scores and make borrowing even more difficult.
“People on low incomes don’t have much money, so you might know you’re being scammed, but what other options do you have?” Friedline said.
Still, she said to watch out for promises of “a new product that you’ve never heard of before that’s positioned as something that’s going to really help you,” like salary advances being offered by an employer and with fees attached can be and have worried some consumer advocates.
Noting these vulnerabilities, Friedline added that policymakers could introduce more regulations and consumer protections, such as B. State interest rate caps for smaller loans. “The exploitation that we think is likely need not happen,” she said.
Of course, not all forms of support are a scam. There are government programs that 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 tricks and money-stealing tricks alike.
People can contact the Consumer Financial Protection Bureau with complaints about financial services, Friedline noted. The agency also has several guides for those looking to buy a home, stay financially healthy during emergencies and disasters, or plan for retirement.
Collins of the University of Wisconsin-Madison noted that it helps to have an open dialogue with family members about financial circumstances. It’s normal to feel stressed about your budget, but there’s no use ignoring the issues.
“The more people can talk about things like this, whether it’s virtually or with friends and families or others — just to make it less taboo — that’s important,” Collins said.
– Emma Ockerman
(ENDS) Dow Jones Newswires
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