A new study shows how many Houston-area neighbors rely on high-cost loans, which researchers say could set people up for failure.
When it comes to borrowing money from payday businesses, researchers at the Reiskind Institute were surprised by the results after talking to nearly 5,000 Houston-area neighbors.
“We’re definitely higher than the rest of the country,” explained Dan Porter of Rice University’s Kinder Institute for Urban Studies. “That’s one of the reasons we want to double and triple check some of these numbers.”
Research shows that nearly one in five, or 19%, of Houston-area neighbors needed financing through high-cost loan services in the last year. The national average is about five percent, they said.
In these places, you pay back much more than you borrow. Studies have found that in some cases, interest rates can be as high as 600%.
“Unless you have the funds right away, you’re going down a path; the fees and interest rates are going to trap you, and that’s where they’re doomed,” Porter said.
Researchers found a problem that affects black and Hispanic families more than white and Asian families. They may say this because of where these businesses are located.
“That’s partly a reflection of where these things are, and partly a reflection of what’s available to people who need this type of bridging the gap from one month to the next,” Porter explained.
The Better Business Bureau says if you need one of these loans, make sure you understand how it works, read the details and ask about the fees. Money researchers say Houstonians need these loans to pay for items like food, housing, medicine and other unexpected expenses.
“We’re not talking about people who want to go on vacation,” Porter explained. “We’re not talking about people who want a new stereo or whatever. We’re talking about people who are trying to make themselves whole.”
Researchers say policies that limit the interest rates people pay could help solve the problem. In fact, the city of Houston has regulations for these businesses.
However, researchers have found that enforcement can be difficult. That’s why they say the country can do more.
Research shows that some states have regulations limiting these services. That’s not the case in Texas, where researchers say the companies can charge whatever rates they want.
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