People on Disability Use Payday Loans

Taking out a high-cost payday loan is an act of desperation, and people on federal disability are some of the biggest users.

Nearly 6 percent of households under 66 and on disability use payday loans, compared with 4 percent of the general population, according to Haydar Kurban at Howard University, who did the analysis for the Retirement and Disability Research Consortium.

The financial vulnerability of disability recipients was starkest in the months after the 2008-2009 recession, when their use of payday loans spiked to 22 percent. The rate of borrowing also rose at the time for the general population but by much less.

Disability benefits under the federal Supplemental Security Income (SSI) program average about $900 a month. To eke out a living, people on disability try to supplement their income with food stamps, Medicaid, some work, or housing assistance from the government or a family member – and some use payday loans to raise quick cash. (A small share of people in this study are not disabled but receive SSI to supplement their Social Security benefits.)

Despite the very low incomes of the disability beneficiaries, they are attractive customers for payday lenders, Kurban said, because the benefit checks provide extra assurance the loans will be repaid.

People typically resort to payday loans because they either have used up, or were denied access to, other forms of debt like credit cards. To get a payday loan, a borrower writes a personal check to pay back the loan on a future date, with interest. The date on the check usually coincides with the next payday – or in this case, next month’s disability benefit. If the loan isn’t repaid before then, the lender cashes the customer’s check.

Payday loans are a costly solution to a cash-flow crisis. It’s not unusual for customers to borrow money multiple times in a year, creating a cycle of borrowing and repaying – while racking up interest rates averaging 400 percent annually.

People on disability are already suffering financial hardship. These high-cost loans only make it worse.

To read the study, authored by Haydar Kurban, see “The Impacts of Payday Loan Use on Financial Well-being of Social Security Beneficiaries.”

The research reported herein was derived in whole or in part from research activities performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement and Disability Research Consortium. The opinions and conclusions expressed are solely those of the authors and do not represent the opinions or policy of SSA, any agency of the federal government, or Boston College. Neither the United States Government nor any agency thereof, nor any of their employees, make any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report. Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.