ACA Linked With 11% Cut In Payday Loans

A study published this week in Health Affairs has concluded that California residents with expanded access to Medicaid under the Affordable Care Act reduced the use of payday loans by 11 percent.

Typically, interest rates for these two-week loans are over 300 percent higher than other loans’ rates, fueling a vicious cycle of debt for borrowers — who tend to be low- to middle-class individuals targeted by predatory lenders.

The Affordable Care Act, passed in 2011, supported the expansion of Medicaid at the state level on a county-by-county basis. California was one of the first states to take advantage of the Affordable Care Act, expanding their state Medicaid program earlier than other states.

The researchers based their findings on data from nearly 1,000 counties nationwide, including 43 early-expansion counties in California.

Additionally, the areas under Medicaid expansion showed a reduction in the overall amount of payday loan debt, and the number of individual borrowers.

The dataset included information from nearly 100 million payday loans taken out between 2009 and 2004, offering researchers roughly two years of data before and after counties began expanding Medicaid.

While affordable health care may reduce demand for payday loans —perhaps as a significant source of financial relief — payday loans themselves have been associated with deleterious effects on borrowers.

A review published last year, which included data from over 70 studies, highlighted the way that payday loans affect the mental and physical health of borrowers as they navigate financial hardship.

Analysts found that people with personal debt suffered a rate of mental illness three times higher than that of people with no debt. Individuals with debt were also four times more likely to experience depression, anxiety, and panic disorders. Half of the population who owed money to multiple debtors suffered some form of mental illness.

The authors of the study pointed out that personal debt was a stronger predictor of mental health conditions than other markers of socioeconomic status, such as level of education or employment status; the association is so high that some experts believe that being in debt should be a socioeconomic marker of its own.

Being in debt can reduce financial access to health services — even discouraging it for fear of taking on more debt — preventing the treatment of acute and chronic health conditions. Chronic stress due to a debt owed to payday lenders may have adverse, physical health effects of its own. Furthermore, economic despair, amplified by payday loans, increases the risk of addiction among borrowers.

Payday loans trap people in a vicious cycle of debt, but the 2016 study shows how payday loans can also trap people into a vicious cycle of health issues. Programs that make healthcare affordable can disrupt both of these harmful courses, significantly improving the quality of life for low- and middle-income Americans.