Do Retirees Use Payday Loans?

Inside Subprime: Dec 11, 2018

By Aubrey Sitler

Since many bad credit loan providers require proof of income to make a loan, it might seem logical that retirees would not make up a big piece of their lending audience. However, available data suggest that there are plenty of retirees out there who have turned to predatory loan firms for a cash advance when they’re in a financial crunch. About 9 percent of adults over age 60 have taken out a payday loan in the last 5 years, according to a Pew Charitable Trusts report published in 2012.

In California, annual reports from the state’s Department of Business Oversight (DBO) indicate that in 2016, nearly a quarter of more than 11.5 million payday loans taken out statewide were made by seniors over 62 years of age, and that age group constituted about 21.5% of all payday loan borrowers in the state. In 2017, both the total number of payday loans in California and the proportion taken out by those over 62 years old diminished, but still an alarming 14.7% of predatory bad credit loans in California were used by that age group. What’s yet more disturbing is the number of loans per customer reported by the DBO: Predatory loan borrowers over 62 years old took out an average of 6.96 payday loans each in 2016, and that number increased to 7.05 in 2017.

There are two big issues at hand here:

First, most retirees are on some sort of fixed income, be it from social security, a pension, or other assets and savings like a 401(k), so taking out a no credit check loan with extremely high interest rates and fees is a risky move. If they can’t pay it back almost immediately, the chances of them having enough access to the extra funds required to meet the ballooning total amount due becomes increasingly unlikely with time, meaning retirees easily fall into inescapable debt traps.

Second, the predatory nature of these loans means that seniors and retirees may be targeted specifically because their limited incomes make them financially vulnerable. That is, payday lenders want to lend to people with lesser likelihoods of paying their loans back quickly because that maximizes the payday lender’s earnings. In fact, there are pages and pages of search results out there that market payday loans specifically to seniors and retirees, likely for this very reason.

There are myriad examples of retirees falling into payday lending or cash advance traps. Daniel Smith (last name redacted for privacy) fell prey to payday lenders in Biloxi, Mississippi earlier this year. After cashing pre-approved checks from cash advance lenders in the mail, Daniel thought they might be the answer to his financial challenge: making necessary home repairs that he otherwise couldn’t afford on a fixed pension income. Nevertheless, after failing to repay loans whose interest and fees kept multiplying, Daniel had to declare bankruptcy. As he stated to a reporter, “I am a grown man, retired military, worked for the city of Biloxi for 14 years so I am not an uneducated man. However, I got caught in this. They make it too simple.”

There are better alternatives out there for folks like Daniel whose incomes don’t quite allow for unexpected costs associated with homeownership, medical emergencies, and more. For state-by-state information on predatory lending practices and other resources that could be available in your community, check out our .

For more information on payday loans, scams, cash advances, and title loans, check out our state and city financial guides.