Everyone has seen the ads. Have an unexpected car repair bill? Can’t find enough money to pay for groceries? Your paycheck’s not large enough to pay your utility bills? Well, the answer is simple: Just check into cash.
Sounded like a great idea at the time. You bring a check, bank statement, identification and proof of employment or other form of income to some payday lender’s office and you can walk out with up to $800. But, before you do that, consider this: The annual percentage rate for these types of loans can be upwards of 391 percent.
Calls to local payday lenders by a reporter posing as a potential customer show that the average cost to take out a payday loan is $15 per every $100 borrowed.
At Cashland, in Oregon, an employee described the process.
“We need your license or state ID, a pay stub, and your latest bank statement as well as a check,” she explained. “You can borrow up to 75 percent of your net take-home pay, which is your pay after taxes have been taken out. The fees are $15 for every $100. We are also able to give loans in increments of $50 and a fee of $7.50.”
The woman, who answered at Advance America, also in Oregon, spouted the usual loan application process – two IDs, pay stub, statement, and check, with name printed on it. The cost for the loan was the usual $15. Although she said she could not tell how much the “customer” could borrow until the application was filled out, the company’s ad in the yellow pages states that loans can be made up to $800.
“The annual percentage rate is 391.07 percent,” she stated when asked.
At Quick Cash, in Northwood, the story was the same.
“The first loan you take out is free,” the young woman answering the phone stated. “That is our special right now. After that, the fee is $15 per $100.”
For Lisa, of Toledo, the payday loan cycle has been impossible to get out of. A single mother of two and a college student, she has found herself in a self-described circle of paying off the loan one day and going back the next to get another loan.
“I make sure I get into the loan office to pay the loan and fees off the day I am paid. Those who know the system know if you pay the loan off the day it is due, you can turn around and get another loan the following day. If you wait until they cash your check, it can take a few days to a week until the check clears and you can’t get another loan until the check clears,” she said. “When you live paycheck to paycheck anyway, you can’t wait for the check to clear.”
To make matters worse, Lisa has taken out as many as six payday loans at a time to meet unexpected bills such as school clothes and supplies, dental and doctor visits and Christmas presents.
“I have had local and Internet loans at the same time,” she said. “Since I am a full-time mom and student, I am only working part-time right now. With rent, food and utilities, sometimes I have had to take out one loan to pay off another loan company and then go back and get another loan to pay off another company, and so on.”
This viscous cycle takes a lot of financial finesse, Lisa admitted, but as of right now, she is unable to stop the process.
“I have gone through this for two years now,” she said. “At tax time I can usually pay off all of the loans and be free for a few months but I always end up back where I started.”
Unfortunately, stories like Lisa’s have become increasingly familiar to Maureen Morris, credit counselor and office manager at Community Credit Counseling in East Toledo.
“There are so many people in trouble out there,” said Morris. “Hopefully, this story will warn others about payday loans.”
Morris has seen young and old caught in the payday loan trap.
“Some have bad credit. Some work at McDonalds, others have pretty good credit with good jobs. There are all types of people going to these places,” she said. Many are low income or fixed income people but many have good jobs and cannot make it to their next pay period in this economy.”
Morris has seen attorneys, social workers and others with well paying jobs use cash companies because they don’t want to use traditional loan companies for a quick loan.
For those living paycheck-to-paycheck, on fixed incomes, or on low wages, the “trap” is merciless.
“The average person we see here has six of those loans out at any one time. You only have one paycheck. How are you going to pay off all those loans? I had a couple with 14 loans out at one time,” she said. “One of the companies in the area charges an annual percentage rate of 435 percent. Someone should do something about this.”
Customers unable to pay off loans are harassed by companies that do not use traditional collection practices, Morris said.
“I have had clients in tears. These companies will call continuously. They will go to your home and knock on your door. They will go to your neighbor’s homes. They harass people you put down as references and treat them as if they were the ones who took out the loan,” Morris explained. “They will embarrass you. I have even had a client tell me that the company called her landlord. It is horrible. These companies are like leaches. They know people are down and out and they say to themselves, ‘Let’s suck more blood out of you.’ Instead of robbing the rich, they are robbing the poor.”
Payday loan companies have legal recourse to take customers to court on “bad check” charges, where they can, and do, get judgments for garnished wages, Morris said.
“The problem is they are working in a gray area,” Morris said. “We do not know what category they fall into. Are they a loan company? The Internet companies are even worse. I liken them to Internet gambling. I had a client who was taken to court by a company that was able to get a judgment for triple the amount of the original loan. No one is stopping this and many people are getting hurt.”
People caught in this struggle need to call a credit/debt counselor right away, said Morris.
“A few years ago, I used to cringe when a person told me they had these payday loans. The loan companies would not take payments back then. Now they are,” she said. “Give us a call and we can see what arrangements we can make for you.”
Those in the payday trap need to close their accounts and live without a checking account for a while, said Morris.