People should learn about the risks of “old-school predatory lending” too, Williamson added, including payday loans, auto-title lenders, and rent-to-own businesses. Payday lenders in particular tend to set up shop in communities of color, Williamson said, and are marketed as easy ways to get cash. Often, those loans come with high rates.
“They have an established presence in the community, and in many ways, low-income consumers have to look past that to figure out whether there are other, more sustainable ways of getting a small-dollar loan,” Williamson said.
When credit becomes more difficult to come by during a recession as lenders limit borrowing, people will be tempted to turn to exploitative products and worse terms because it seems like all that’s available, Friedline said.
Credit-card issuers previously reduced credit limits during the COVID-19 pandemic and Great Recession, a move that can help them prevent losses from consumers unable to repay their debts, according to a June report from the Consumer Financial Protection Bureau. However, those reductions can significantly increase utilization, or consumers maxing out their cards, which can in turn lower credit scores and make it even harder to borrow.
“Low-income folks are short on money, so you might know that 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 haven’t heard of before, that’s kind of…
