The bottom line is the underserved suffer from cash flow deficits that are a reflection of low wages and an ever increasing cost of living. The major socioeconomic factors contributing to these trends merit separate public policy approaches and regulatory changes that are not necessarily in the purview of the products offered by financial institutions. However, if these institutions are going to target this market and they want to do so responsibly, they need to provide small-dollar products that spread the cost of an income shortfall over a period of time and at an affordable cost of a 36% APR. The traditional payday loan structure should not be the standard by which innovation in this credit space is measured.
Liana Molina and Andrea Luquetta are with the California Reinvestment Coalition, a consumer advocacy group.