Climate change driving demand for predatory loans, research shows


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By Hilary Beaumont, The Guardian

Payday loans
Payday loan stores prey on consumers who cannot afford increasing seasonable bills (Gregory F. Maxwell PGP:0xB0413BFA, GFDL 1.2, via Wikimedia Commons)

Two competing payday loan stores stand on the corners of an intersection in south Los Angeles. An area of persistent poverty, south LA is also a banking desert where payday lenders fill the gap. Long lines form inside the stores on the first of the month, when rent is due.

Guillermina Molina, a 60-year-old retired housekeeper, visits the same Speedy Cash each month. During the summer months – which are becoming increasingly hot – she runs her air conditioner but frets about her utility bills. “It’s kind of hard because the [power bill] is coming up too high because you gotta have the air conditioner on,” Molina said.


Molina doesn’t have savings, so to cover her bills she takes out a $225 payday loan every month, paying $45 in interest on each loan. When she’s unable to pay back her loan on time, she’s charged extra. “There’s nothing left over,” Vargas said.

Molina’s financial struggles are common. According to the Pew Charitable Trusts, 12 million Americans take out payday loans each year, paying $9bn in fees. New research suggests climate change is driving up demand for these loans.

A study released earlier this year found that extreme temperature shocks – like heatwaves and cold snaps – are leading to surges in demand for payday loans in the US.

The paper, published in January by the Bank of Canada, suggests extreme heat and cold may increase demand for payday loans in several ways: increased energy costs as people turn on heating or cooling devices, lost income for people who are unable to work in extreme heat, and health problems leading to medical costs for underinsured or uninsured people.

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