Learning about High-Cost Financial Services

Brian Page, a teacher in Reading Ohio, wants his students to understand the drawbacks of check-cashing services, pawnshops, rent-to-own stores, payday loans, and other shadow banking services.  As a result, he scheduled a field trip for his students to visit these sources of high-cost financial services in their community, which are used by many unbanked consumers.

At LoanMax, they observed people getting loans with their auto titles serving as collateral.  One missed payment could lead to repossession of the vehicle. Next, at CheckSmart, students learned about payday lending and tax refund anticipation loans.

At CashAmerica people were making loan payments on money borrowed, which used jewelry, electronics, and sports memorabilia as collateral. Finally, the visit to the Rent-A-Center store demonstrated the exorbitant costs of furniture, appliances, and electronics when using a rent-to-own payment program.

For additional information on teaching about high-cost financial services, go to:

http://www.nytimes.com/2014/05/24/your-money/a-high-school-field-trip-to-a-pawn-shop.html?src=me

Teaching Suggestions

• Have students talk with someone who has used one of these high-cost financial services. Obtain information about their experiences.
• If appropriate, have students visit a high-cost financial service provider to obtain information about their services and fees.
• Have students create a video presentation with suggestions on how to avoid using costly sources of financial services.

Discussion Questions 

1. Why are an increasing number of people using high-cost financial services such as pawnshop loans, payday loans, and rent-to-own programs?
2. What alternatives might used by consumers instead of these high-cost financial services?
3. What actions might a person take to avoid these high-cost financial services?