Payday Lending Part 1: What Is Payday Lending?

Hi! My name is Tony Williams, and I’m going to be working with Blexit for the next three months as their Payday Lending research fellow.  Over the past year or so, Blexit has been having a lot of conversations about payday loans, mainly focusing on how they take wealth out of Black communities. I was brought on to help Blexit do research on payday loans so we can figure out how to prevent our people from getting caught in the traps they set for us, once and for all.

A little about me: I’m an artist, writer, and activist from Minneapolis. I graduated from Santa Clara University in 2015, and moved back to the Twin Cities to be a community organizer. I’ve been doing racial justice organizing ever since, everywhere from boardrooms to highway shutdowns. When I’m not doing that, I make things: I’ve been a rapper for more than a decade, and I’ve recently branched out into performance and installation work too. I make art because I think the world needs new perspectives and ways of thinking, and I’m happy to be able to bring that to this work, too.

As part of this fellowship, I’ll be posting what I’ve learned regularly on this blog so we can share info. This week we’re going to take a look at the basics of payday loans and the problems they create for people in our communities.

What are payday loans?

Payday loans are expensive short-term loans marketed to people who need cash fast. Basically, they’ll give a loan to anyone who shows up with paycheck stubs. They don’t require collateral, a bank account, or credit checks. All you have to do is fill out a check with the full amount of the loan, plus a service fee, and they automatically take the money out of your account on your next payday. Unlike most loans, you have to pay back the whole amount at one time. But if you can’t, and you want to extend the loan, you can choose to just pay the service fee, and renew the loan so that you can pay it on your next payday.

Sounds convenient.

Sure does, huh? That’s how they get you. In reality, payday loans are really dangerous: they lure in the people who need money most, then trap them in a cycle where they keep renewing their loans without ever having an opportunity to pay them off. Despite payday loans being marketed as “short-term loans,” the average person has to keep renewing their loan for five months before they can pay it off. And those service fees are crazy expensive: the average borrower ends up paying $520 in service fees for a $375 loan.  Payday loans are marketed as a way to make things easier, but research shows that they actually make things much harder for most people who take them out.

So why would anyone take a payday loan out?

A lot of folks don’t have a choice. It’s hard to get a less-expensive traditional loan if you don’t have a bank account, credit history, or a reliable income. For people who don’t have friends or family with money, stuff to sell, or good credit, payday loans can be the difference between paying your bills and getting evicted. 69% of first time borrowers take out payday loans to catch up on normal expenses, and another 16% take them out because of an unexpected emergency.

Other folks just get tricked: payday lenders advertise “short-term loans” to people, but never tell them that the majority of borrowers take months to repay their debt, rack up hundreds of dollars of service fees, and end up having to go somewhere else to find the money to repay the loan.

That sucks.

Absolutely. And who do you think gets taken advantage of the most by payday lenders?

Gotta be Black people, huh.

Yep. If you just look at the number of customers, most payday loan customers are white. But looking at the odds a given person takes out a payday loan tells a different story. A Black person in America is more than twice as likely as a white person to take out a payday loan. 12% of Black people have taken out a payday loan at some point in their life, compared to 4% of white people.

So let me get this straight: payday loans are horrible for people’s finances.


And Black people are most likely to have to use payday loans.


So basically they’re just another example of the white supremacy inherent in capitalism, and the ways in which the economy is split into two: one where you’re white, and you’re more likely to have access to savings, bank loans, or friends to borrow money from, and one where you’re Black, where centuries of denial to even the most basic of wealth-building tools have been given you few options but to flee into the arms of predators to meet your day to day needs?

Yeah that sounds about right.

And then those predatory lenders charge you insane amounts for access to tiny amounts of money, preventing you from effectively building wealth to escape the cycle of debt?

You got it.

Bummer. How many of these lenders do we have in Minnesota?

Dozens – nine just in Minneapolis alone. Most of them are on Broadway or Lake Street, of course.

Is there anything we can do about them?

Definitely. We have lots of options to confront payday lenders – requiring them to be more transparent with their customers, passing laws that limit how much they can charge, and building community-centered alternatives, for starters. More than a quarter of states don’t even allow payday lending at all. Next week, we’ll talk about some of the work being done around the country to disrupt payday lenders and destroy the debt traps that they create. See you then.


If you have ideas about how to fight payday lenders, or want to get involved in our work, please feel free to reach out. You can reach me at



Pew Research Center, “Payday lending in America: Who Borrows, Where They Borrow, and Why.” 2012

Brian Melzer, “The Real Costs of Credit Access: Evidence from the Payday Lending Market.” 2007

MN Department of Commerce data on payday lenders



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