Co-authored with Devin Fergus
Kansas City has reason to celebrate. The city's beloved Royals just ended the longest playoff drought in major North American professional sports. But just in the shadows of their ballpark a drought of a different sort has taken hold. There, in the picturesque suburb of Overland Park, payday lenders, whether in physical or online form, have been drying up the already limited household finances of one of the heartland's great suburbs.
The "OP" isn't just any suburb. For decades CNN, Money, and Businessweek consistently rated the Kansas City suburb one of the top 10 places in America to live, grow up, and raise a family.
But since the eve of the Great Recession, payday loan stores have busily set up shop. "I don't believe it's the type of development that we want to see in Overland Park," city councilman Terry Goodman told a Kansas City Star reporter. "It portrays an image of an area in decline."
While payday lending is often identified with the so-called unbanked or working poor, the fastest growing customer base within the industry is middle class (and white). The median household income for whites in 2012 was $57,009, compared to $33,321 for African American families.
The percentage of households relying on alternative financial services like payday loans ticked upward following the Great Recession, from 36 percent in 2009 to 41 percent in 2011.
Between 2009 and 2011, the poorest Americans earning $15,000 or less actually decreased their use of payday loans, while households making $50,000 or more turned to payday loans in ever higher numbers.
The Urban Institute grimly summarized the trend, "demographic composition of nonbank credit users [has] shifted, toward population segments traditionally considered economically advantaged: older, nonminority, more educated, married couples, and those with incomes above $50,000."
Twenty percent of industry revenue actually comes from college graduates, historically the backbone of the middle class. The largest single share of borrowers has at least some college education.
It might be difficult to imagine that a college educated, middle class person is a payday loan borrower. However, let's not forget that one requirement of obtaining a payday loan is a check stub and bank account--two mainstays that a generation ago, would mark one as middle class.
To be clear, the payday lender's primary clientele remains the working poor, with payday loan stores more ubiquitous than McDonalds and Starbucks, which is a constant reminder that we live in an impoverished nation.
The Corporation for Enterprise Development reports that 25 percent of middle class households (those earning $56,113 to $91,356 annually) face liquid asset poverty. That means they could not withstand a lost income for more than three months or they would have to borrow to cover the tab. The majority of the liquid asset poor are white or 59 percent of the total, and employed, 89 percent of thte total. Nearly half have at least some college.
The rise of payday lending corresponds directly with the flatlining of wages. As its very name suggests, a payday loan is more closely tethered to one's income and earnings than a credit card, title loan and forms of short-term, consumer financial products.
Industry analysts have been explicit about the impact of wage stagnation on payday lender profits. "Household income and industry revenue are perfectly inversely correlated," according to IBISWorld, an international clearinghouse for financial research and long-range forecasting.
And thanks to such schadenfreude, payday lending is predicted to grow its profitability from struggling wage earners until at least 2019. In other words, wage stagnation is a thing of the past, present, and foreseeable future.
The picture is far worse for African Americans. While larger numbers of white Americans may take out a payday loan, the usage rate is significantly higher for African Americans.
According to Pew Charitable Trust 2013 Report, payday usage is 105 percent higher for African Americans than for other races and ethnicities. Nearly three out of every four (or 73.5 percent) households that borrow earn $40,000 or less. Analysts describe households in this quintile as lower income. But within the universe of black America, a $40,000 salary marks the solidly black middle class.
It would be misguided to define payday borrowers as "bottom feeders" associated only with the working poor or the "financially irresponsible". In 2012, the majority of borrowers, or 69 percent, used a payday loan to cover a recurring expense like a utility, credit card bill or rent. Other borrowers used payday loans to cover unexpected expenses for car repairs and to address medical emergencies.
Families are living on the edge, and many folks are feeling the financial pinch.
Academics and industry spokespersons quibble over whether the payday customer base is really middle class or simply the working poor. Such pedantic squabbling misses the big picture. More and more families are living on the edge.
Could it be that capitalism's most ubiquitous response to the crisis of wage stagnation is the rise and growth of payday lending industry? Whether it is, or it isn't, today Americans find themselves deeper in debt, working poor and middle class, whether they are White, Latino or Black. And if they use a payday lender, chances are they lose.
Lillian Singh is a social economic activist. Devin Fergus is a senior fellow at Demos, a policy think tank, and associate professor at The Ohio State University. Both are participants in The OpEd Project Global Policy Solutions Greenhouse.