Payday loans, poverty and welfare: An uncomfortable relationship
(Note: This story is part of an Idaho Reports series on Temporary Assistance for Needy Families, or TANF.)
By Melissa Davlin, Idaho Reports
You’ve seen ads for payday loans, and you’ve likely heard about the dangers — high interest rates, fees for late payments. But there’s a small amount of taxpayer dollars that goes to help people pay off those loans in an effort to nudge them out of a cycle of debt.
Temporary Assistance for Needy Families, or TANF, is a federally funded block grant program that has a wide variety of uses. The Idaho Department of Health and Welfare receives TANF money that it uses for programs like adolescent pregnancy prevention and job training. (Read more about adolescent pregnancy prevention programs here.)
A small number of Idahoans also receive cash assistance or help paying bills, said Courtney Keith, the DHW Navigation Program Manager for Family and Community Services. Some of those bills are loan payments.
So does that mean the state is using taxpayer dollars to perpetuate payday lending businesses? The answer, Keith said, is more complex than that.
First, a primer on the program: To qualify for TANF help through the Navigation program, an individual must have children in their household. When they enter the program, recipients are set up with a caseworker, who works with them for up to 120 days. That help could come in the form of connecting families with community resources, food banks, government assistance, or budgeting help. Not everyone receives the cash assistance or help with bills, Keith said, and community services often pitch in to help.
The families who receive help are in tough situations, Keith said — one missed rent check away from being homeless, a broken-down car preventing parents from getting to work, that sort of thing. As one of TANF’s primary goals is keeping children with their parents, the idea is paying utilities or mortgages will help keep those families financially secure. That, in turn, decreases the likelihood of children having to enter the foster system.
“These are families that are really on the fringes,” Keith said.
Idaho Reports reviewed more than 10,000 expenditures made through the TANF program between July 1, 2015 and June 30, 2016. The vast majority made sense: Payments for utilities, car repairs, checks to landlords.
A few entries stood out: Specifically, payments made directly to payday and title loan companies on behalf of welfare recipients.
These payments were a tiny fraction of the welfare payments made by the state. Out of 1,489 bill payments made on behalf of Idaho households in fiscal year 2016, only 18 of those were some type of loan payoff — equal to about $6,000, Keith said. Those loan payoffs are also legal.
Though the amount of money is small, it illustrates the uncomfortable position payday lending puts the department in.
Even if the vast majority of TANF dollars don’t go directly to payday lending companies, Keith said many clients who benefit from TANF have often turned to the loans when they’re desperate. While DHW actively counsels people not to use payday lending companies, a small amount of its TANF dollars goes to those same companies, arguably perpetuating their existence.
And the link between payday loans and poverty is well-established. According to Pew Charitable Trusts, the average payday loan borrower earns $30,000, and 58 percent have trouble meeting their monthly expenses. Seven in 10 borrowers use the loans for monthly expenses, like rent and utilities, and most end up paying more in fees and interest than they originally borrowed.
Sometimes, with education and budget help, as well as guidance on how to set up bank accounts, clients can get out of poverty cycles without any TANF payments on their behalf, Keith said. Counseling and education go a long way.
Heidi Caldwell, executive director of Western Idaho Community Action Partnership in Payette, said Idaho’s payday loans contribute to a cycle of poverty among clients she works with.
“People may not understand how those loans work and exactly what they’re getting into,” Caldwell said in a 2016 interview with Idaho Reports. “They’re just needing money maybe to keep their power on or to buy food or school clothes or something that’s an immediate need. And they may not understand that they have double to pay when they turn around.”
Keith said it’s frustrating to see lenders prey on individuals who don’t fully understand the implications of taking out a high-interest loan, especially when people are desperate to pay their rent or bills.
“People who fall into (the payday loan cycle) happen to be the most vulnerable in our society,” Keith said.
If clients stop receiving caseworker help after 120 days, how does the department know if the program is a success?
There are two metrics, Keith said: One, children stay in their homes. Two, the same families aren’t coming back for help again and again.
“That’s a pretty good indicator that they’re making it,” she said.
Seth Ogilvie contributed to this report.