CBS News Investigative Producer Laura Strickler wrote this story for CBSNews.com with additional reporting from Lauren Zelt.
CBS News that the payday loan industry uses aggressive sales tactics to lure customers into payday loans that can trap borrowers in a revolving cycle of debt. Six states and Washington D.C. have taken steps to effectively ban the industry.
For those who pay off the loan with their next paycheck, a payday loan can be a boon. But some customers get stuck.
Here's how problems can begin: a customer needs extra money and takes out a typical $300 advance on their paycheck along with 15% interest at $45. But two weeks later when their next payday arrives and they pay off the loan, they find they cannot afford to live on what is left, so they take out another loan at $345. Over time, the $45 every two weeks adds up and customers who stay in this cycle for a year find the annual interest rate is over 300% and they have paid $1170 in interest for the original $300 loan.
Lyndsey Medsker, spokesperson the Community Financial Services Association (CFSA) told CBS News that in response to such criticisms, their member companies now offer extended payment plans.
"So any members of our association are required to offer - if you borrow $300 and two weeks later you find that you cannot pay it back, you're required to offer an extended payment plan to that customer to give them an additional eight weeks to pay it back at no charge," Medsker said.
CBS News called fifty payday stores across the country whose companies are members of CFSA to ask if they offered an extended payment plan.
Employees at thirty stores told us they do not offer an extended payment plan.
A Check 'n Go store employee in Woodbridge, Virginia told CBS News, "No, you have to come in and take out the loan and pay it in full." At a Dallas Check 'n Go, extended payment plans are "never in the stores, but you can online."
One Advance America employee in Bastrop, Texas said, "No, the way it works here is I'm not supposed to discuss this over the phone. I'm supposed to try and get you to come in the store."
The Advance America website states: "If a customer is unable to pay back an advance within the arranged timeframe, Advance America offers an Extended Payment Plan to allow customers a longer time period to repay at no additional charge."
But at the Advance America store in Ames, Iowa an employee said, "No, we don't really do payment plans. When you come in to take out the loan you have to sign a contract saying you're going to come in and pay the loan in full on your next payday." And in Arlington, Virginia, "No, you have to pay it back on your payday.
In response, Jamie Fulmer, spokesperson for Advance America told CBS News, "We don't sell extended payment plans, that is not our product, our product is a payday advance." Fulmer says every customer who takes out a loan gets a brochure that mentions the extended payment plan.
Check 'n Go sent CBS News their extended payment plan policy but the company says it is not posted on their Web site for their customers because, "It could be confusing and misleading to our customers," due to different state laws, "and may explain the responses your staff received from our stores."
Cash America says its policy is the same as the rest of the industry but would not answer questions as to why some of their employees were unaware of the policy.
Steve Schlein with the CFSA told CBS News, "The Extended Payment Plan is available to customers who cannot pay the loan when due, not to random callers who don't even have a loan."
For the 20 stores who responded that they did have an extended payment plan, most indicated customers could use it only after four consecutive loans and only once a year which in some states is the law.
At an Advance America in Charleston, South Carolina, "We do offer an extended payment plan, but you can only do it once a year. It's not something that we want to do. We do it, but it's better not to."
Some stores responded by suggesting that instead of a payment plan, the caller could just take out another loan.
In Charleston, South Carolina at a Check 'n Go an employee said, "You can pay it off and re-borrow the funds so that you can pay your bills, then pay the loan back the next time."
At a Cash America store in Tulsa, Oklahoma, "You'd need to pay it off and get another loan the next day."
And at another Cash America store in Houston, "You have four times to come in and renew the loan, and then by the fifth time you have to come in and pay it off."
Chris Widener (R), Ohio State Representative who wrote the legislation to push the industry out of his state told CBS News, "This is a product that is in fact probably predatory and addictive in some nature."
By Laura Stricker
Copyright 2008 CBS. All rights reserved.