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Idea of the Day: The Need to Encourage Responsible Credit

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idea light bulbMillions of Americans are financially vulnerable. Yet the credit options available to borrowers in some cases reduce their financial security even more.

The story of Susan Fronczak, a 60-year-old Arizona woman, demonstrates how expensive and risky consumer credit can be. She borrowed $2,000 from an auto title lender—a company that makes loans pledged by a car title and a spare set of keys—at a 182 percent annual interest rate, under an agreement that would cost her at least $3,860 to pay back the $2,000 loan. Ultimately, she could not afford the monthly payments, and her car was repossessed. By the time she was able to get her car back, she had paid more than $5,000 to the lender.

Unfortunately, many Americans could easily end up in Fronczak’s shoes. Twenty-seven percent of Americans report that they have no emergency savings at all. Roughly two out of every five American families indicate that they would “probably not” or “certainly not” be able to come up with $2,000 in 30 days to deal with an emergency, according to the 2012 National Financial Capability Study. For Latinos, African Americans, and young people ages 18 to 34, this rises to half of all families. Of families in the bottom third of the income distribution, 68 percent said they would be unable to come up with the money in an emergency.

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To speak with our experts on this topic, please contact:

Print: Allison Preiss (economy, education, poverty)
202.478.6331 or apreiss@americanprogress.org

Print: Tom Caiazza (foreign policy, health care, energy and environment, LGBT issues, gun-violence prevention)
202.481.7141 or tcaiazza@americanprogress.org

Print: Chelsea Kiene (women's issues, Legal Progress, Half in Ten Education Fund)
202.478.5328 or ckiene@americanprogress.org

Spanish-language and ethnic media: Tanya Arditi
202.741.6258 or tarditi@americanprogress.org

TV: Rachel Rosen
202.483.2675 or rrosen@americanprogress.org

Radio: Chelsea Kiene
202.478.5328 or ckiene@americanprogress.org

 

This is part of a regular column: Idea of the Day

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