The payday loan industry has boomed in the last two decades. The interest on these types of loans, which are typically taken out by those on low incomes for essentials like rent and food, can be up to a staggering 600% APR. Figures show that in 1998, short term, high interest lenders paid $10 billion to consumers. In 2011, this reached a massive $48 billion. And with some of their customers describing the industry as “legalised loan sharking” lenders have been receiving an increasing amount of criticism from the Consumer Financial Protection Bureau.
While the financial impacts of payday loans have been highly investigated, a new study has been carried out to see if they have any effects on an individuals health. The study was designed to see the impacts that different types of debts had on the health of those borrowing. The entire “fringe banking” system was investigated, which included all types of high interest loans including payday loans, pawn shops and car title loans companies. The results were then compared to consumers using traditional loans or mortgages.
The researchers found that those who borrow from high interest and short term lenders, like payday loan companies, are 38% more likely to rate their current health as fair or poor. “Most prior research on the topic focuses exclusively on the financial consequences of the loan, whether borrowers are better or worse off financially,” said Jerzy Eisenberg-Guyot, lead author of the study. “We thought it was too restrictive of a way to look at it.”
The authors of the study used data collected from the US Census Bureau, along with a survey run between 2011 and 2015 by the Federal Deposit Insurance Corporation. Respondents answers were compared to those with similar backgrounds to make them more accurate, and those with existing disabilities of health problems were excluded from the study. The results showed a strong connection between the use of fringe banking products and poor health.
“This research adds to the growing evidence that connects specific kinds of household debt and financial exclusion to poor health,” the researchers said, adding that: “Future research should explore in more depth how the two-tier US financial system – one for the wealthy and one for the poor – affects health and worsens health inequalities.”