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As we stated on last week’s blog on “rent-a-banks,”  the battle against the slippery predatory payday lenders is a long one; like a costly game of Whack-A-Mole, their wealthy backers and Washington lobbyists continue to find loop-holes to take advantage of vulnerable, underserved Americans. Only this time they’re utilizing digital payday loan ads on social media to form a narrative by making dishonest claims promising immediate cash without credit checks, late fees, or interest rates. In many instances, they’re getting around the rules of the social platforms themselves.

Digital payday loan ads always know who to target

A late-2022 PYMTS report surveying 4,000 individuals between December 8-23 found that the number of Americans living paycheck-to-paycheck increased over the course of 2022, with almost two-thirds of Americans – or roughly 64 percent – claiming they do so. The report discovered the number is about 9.3 million more than 2021 and includes around 8 million people earning more than $100,000 per year. Does that last number surprise you? It probably shouldn’t; Nearly one in three American workers earning more than $100,000 per year run out of money before payday, according to an October 2022 CNBC report

Looking ahead, about a third of respondents in the report believe their financial situation will stay the same while 27 percent believe their situation will get worse, citing inflation and present economic uncertainties floating around. About 75 percent believed inflation was or will be the main culprit. It’s a frustrating state to witness: So many consumers don’t trust the mainstream financial system, yet that system – particularly the member-owner credit union infrastructure – is specifically structured to benefit its members’ financial health and inclusion goals.

So it stands to reason that if a consumer represents one in three Americans who lack financial literacy – or, for the purposes of today’s topic, too young to understand the difference – they may believe the appeal of a payday loan. Easy money, right?! More than that, the slick digital payday loan ads lenders feature on TikTok or any other social media platform are marketing small, short-term loans to a younger, impressionable  audience – another generation to indoctrinate into believing the flickering neon lights and “accessibility” of funds: **NO CREDIT SCORE REQUIRED!!**

Payday Loan Ads
Photo: Michael Heise | Unsplash

The ol’ bait and switch, just different packaging

When 12 million Americans who need an immediate infusion of cash every year find themselves with more month than money, a digital payday loan ad coming across their phone screen almost feels predestined. Unfortunately, that lack of financial awareness can be costly for those consumers, particularly for impressionable minds who don’t know any better. 

Now, video ads have begun popping up on sites like TikTok promoting small, short-term payday loans to the platform’s newer, younger audience, framing the product as “cheap” and “easy.” Just because it appears simple doesn’t mean it is. These predatory payday lenders are using social media companies to fabricate false claims vowing quick cash without credit checks, late fees, or interest rates. In fact, such “lenders” found a way to get around the rules of the platform. Ironically, both TikTok and Meta – parent company of Facebook – contain rules restricting ads for short-term/payday loans. Unfortunately, a few seem to have gotten through.

First of all, those ads may not label their charges as an “interest rate,” however what they are charging is still what you have to pay. It’s just the language. A lot of the lenders that promote themselves on TikTok attempt to evade regulations and interest rate laws in different states by changing the wording for the services they provide. When they re-phrase their interest rates as a “tip” or a “fee,” these predatory lenders are banking on the idea the consumer won’t notice just how much you’re actually going to pay. 

Remember, their entire business model is predicated on roll-overs and debt-traps, as opposed to the support and financial counsel a member would receive from a credit union. At a cooperative, terms can be readjusted to suit any unforeseen changes. Also keep in mind – responsible and accountable small dollar lenders, be it a mainstream financial institution like a credit union, for instance, always disclose the annual percentage rates for their loans from the jump.

The destructive consequences of these subversive TikTok digital payday lending ads are far-reaching in their impact. Young minds, upon seeing these quick-cash promotions, may begin believing them to be the norm for consumers everywhere and into the future. Impression by impression, those ads can set a dangerous precedent for when that pre-teen, teen, or young adult reaches the workforce. 

Don’t know about you, but the days of playing Whack-A-Hole with predatory payday lenders is over. Social media and online channels represent another front in the battle for financial literacy awareness and education in this country. With the help of credit unions like yours, we can bring the era of financially-destructive and corrupt payday lending to an end, regardless of the media platform. 

Part of that financial education is ensuring our nation’s consumers are aware of the strength of the credit union member relationship and the wisdom to offer them responsible, affordable, and accessible products like QCash’s Life Event Loan platform that can establish and then build upon the financial health of the member for the long-term. 

Does your cooperative see itself as a forward-thinking solution for financial inclusion and responsible small dollar lending? If so, QCash’s Life Event Lending suite of services is for you and your members. We look forward to working with you!