Short-Term Loans Can Mean Lasting Trouble
Payday Advance Loans Seem Simple, But Can Lead To Endless Cycle Of Debt
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Payday Loans Scrutinized
With more American's struggling financially, payday loans are coming under scrutiny for trapping the working poor in a vicious cycle of debt. Armen Keteyian reports.
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(CBS)
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Mary Bates took a $400 payday loan, with $70 interest, but after paying it back two weeks later, she couldn't afford to live on what was left. (CBS)
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Credit Crunch
Feeling the squeeze? Here's a look at actions and statements from key players in Washington.
Today there are 24,000 payday lending stores in America - more than Starbucks and McDonald's combined. They provide 19 million American households a quick way to make ends meet.
"Please borrow only what you feel comfortable paying back," says a video by the lending industry.
A typical customer takes out about eight payday loans a year - in essence, an advance on their paycheck - with rates as high as 20 percent, Keteyian reports.
For lower- and middle-class families with few financial options, such loans - even at that price - are a godsend.
But folks like Mary Bates now see something else - a short-term solution turned long-term trap.
"An endless cycle; a dead end," Bates said. "I would advise anyone not to."
For Bates it all began with a $400 payday loan - plus $70 interest - to fix her car. But after paying it off two weeks later, she couldn't afford to live on what was left.
So she took out another loan, starting a two-year cycle with a variety of payday lenders that ended up costing this single mother of two what she says was more than $1,500 in interest to essentially "float" a $400 loan.
"They are set for people like me, that live payday to payday. And then once you're in there, you can't get out," she said.
"Fifteen to 20 minutes, you can walk out with cash in hand," said Terrence Jent, one of eight former industry employees who spoke with CBS News.
A former regional manager, Jent says payday lenders train their workers to set hooks.
"Incentives that you offer to customers to get them to become repeat borrowers," Jent said.
Like "take out five loans, get the sixth one free." Or offering cash to managers of low-income buildings to refer desperate tenants.
And this document, obtained by CBS News reveals that among the targets for at least one payday lender are: "single-parent households with multiple children," who are "financially stressed."
"We had people all the time that would come in and take out a loan to pay their retainer fee on their lawyers to file bankruptcy," Jent said.
Looking at the industry's own Web site, we discovered that two of the customers profiled there actually declared bankruptcy - partly due to multiple loans from payday lenders.
"The service is very transparent," said Lyndsey Medsker, a spokesperson for the Community Financial Services Association. "There's no fine print; there's no hidden fees."
"Did you also know that two other people on your Web site have subsequently declared bankruptcy and they listed payday lenders as part of the reason that they were pushed over the edge?" Keteyian ask
"But I think you'd find that payday lenders would be a small percentage of whatever debt - people have when they do declare bankruptcy," Medsker said.
It's not the loan that - it's the interest on the loan that we're talking about.
"What happens without the option of taking on a payday loan? Does someone ... is it better off if they bounce a check? What would you recommend that these people do?" Medsker said.
Mary Bates knows full well what she will do the next time she's in a bind.
"I would do without electricity, water, whatever it would take until the next pay day - until I could pay," she said. "I would not do it."
It's a long-term lesson about instant cash Bates hopes others won't learn the hard way.
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See all 253 CommentsIt is very much like the ease of credit cards issue in the last 10 to 15 years. Too easily and quickly given, with outrageous charges for any and everything that could be piled onto the bill. Then run to the congress and president for protection from financial loss from those who should never have been extended as far as they ere. Or housing industry snafus''s.
Our economy has been a house of cards (no pun intended really) for many, many years. That it is tumbling down should be no surprise. And the ''blame'' is clearly placed at the top of the financial schemes.
Same as with insurance companies, HMO''S and most taxes and fees in the country. Lots of smoke and mirrors to prop up shaky annual stockholders reports, etc.
I love how the story says she ''couldn''t afford to live on what was left'' after she paid off the loan. Why would she borrow the money if she couldn''t pay it back?
These lenders can''t hold the consumer''s hand, some responsibility must fall on the consumer''s shoulders.
This is no different than someone taking out a bigger mortgage than they can afford, and somehow that is the mortgage lender''s fault?? I don''t think so. These are adults making their OWN financial decisions. It is not up to the government or the lender to hold the consumer''s hand through the decision, especially when all the details of the loan are disclosed up front. Not to mention the fact that the lender would be foolish to issue a loan they KNOW will not be paid back. Where is the lender''s incentive in that scenario.
Then the comparison of the number of payday shops vs the number of McDonalds and Starbucks. What an asinine analogy!
They are comparing an ENTIRE INDUSTRY to two individual corporations. Of course there are more payday places. Now if they were to say there are more payday loan stores than there are fast food restaurants in America, that would be true shock-value. What terrible reporting.
If banks and credit unions were required to do the same for their fees, the APR would be much higher than a payday loan, in most cases triple. Banks and credit unions also do not disclose their fees in poster format but in small print on the back of their statements. Banks and credit unions charge unlimited bounced check charges and overdraft fees.
These are the facts and not hype. Customers that take out payday loans clearly understand the fees and are making a choice. Customers don''t want hidden fees or long term debt. They have a need for short term cash and make the choice of a payday loan.
Posted by doodle6475 at 08:21 PM : Jul 28, 2008
Apparently all of you McSame/Bush supporters missed economics class all together because you were handed a $128 million dollar surplus and turned it into a $409 million dollar deficit. All together now, it''''s called Raping and Pillaging the US 101 in the name of Conservatism, smaller government, and family values! America won''t be fooled for a third term.
loan sharking operations and should be outlawed.
loan sharking operations and should be outlawed.
He didn''t need to mention that people use payday loans to save money on "bounced check loans" which generate a substantial portion of bank profits and generally have an APR over 10 times higher than payday loans. See http://www.cfsa.net/get_the_facts.html
It is time for the media to report responsibly on this issue. Please see "Predatory Reporting on Payday Loans?", a press release issued by the Statistical Assessment Service (STATS) at George Mason University (a nonprofit, nonpartisan research organization), at http://www.huliq.com/64769/predatory-reporting
You stay in that jail until the checks are paid off and you serve time. Pay day loans are no better or worse than Pawn Shops, they both screw-u with 250 % interest rates.
Then they should set a limit!!
This is similar to those who are willing to pay in advance to get their income tax return a week earlier.
"In my state if you bounce checks you go to JAIL."
Maybe, move to antoher state.
Perhsps bouncing a check is not criminal intenetion, just poor judgement.
United "States" is what founded our freedoms.
A reason, that "states" must have autonomy.
Remember the Cival War was NOT about Slavery.
It''s was about the stses rights and feds making us all slaves, with a big stick!
As stated by earlier comments, people living on paycheck to paycheck understand quite clearly their options and for many of thems, payday loans are a cost effective credit option in certain circumstances.
Its time the critics recognize that payday customers are not as simple minded as they would like to believe.
To simply dismiss the product as a "trap" is an insult to the millions of intelligent consumers and only undermines the credibility of the critics
Have the luxury or intelligence to search for interest rates or search the internet.
John McCain could not perform this task, but Al Gore could because he invented the Internet!
I disagree.
United "States"
USSR failed, this is why they are states again.
Freedom, no big Government.
Government in 1776 was small as intended.
Our forefathers, did not Control ALL aspects.
Our Cable TV is now controled.
Our Freedom of Speech is governed by the FCC.
(And Janet Jackson got away with showing a "boobs")
All Boobs should not be barred, why should a male on baywatch show his boobs?
This is sexist.
I think our forefather would agree that all boobs or no boobs.
If you choose to lie on the application thats your choice as an american citizen.
Such companies wouldnt have to exist if the banks werent crooks and took $35 bucks for a bounced check. When it comes down to either boucing a check where the company you wrote the check to is going to charge you 20 bucks for that returned check, your bank is going to charge you $35 to $50 bucks for the return check (and any nubmer of other retarded fees that they can muscle in there) A simple loan of this nature is NOTHING. Pay $20 to keep $100 in your account to prevent a $20 return check fee, $35 over draft fee, $7 negative balance fee.
You''re right. Maybe people should just do away with Payday lenders.
When you have MORE people on welfare, when taxes go up to support them, and you have more people desperate on the streets, then maybe you''ll look at that burglar with a little less malous in your eye and ask WHAT DID I DO AS AN INDIVIDUAL TO PUT YOU IN THIS SPOT? Oh, yea! I prevented you from grabbing some quick cash to save your butt.
If you cant use payday lending responsibly then dont use them at all.
You dont hold back the entire class of 3rd graders because little bobby in the back doesnt get it. Doesnt understand that basic math which is basically what it is.
Why are you punishing the whole for a few nimrods that cant manage their own budget around their payday loans. Or even the ones that cant be honest on their applciation so that the lender can protect them.
I know its all a big stretch. Hold people accountable for their own actions? Psst!
But then again you''re the same stupid f*cks that blame the cigarette companies from giving you cancer when it says right on the package it''ll give you cancer.
Try expressing an APR with overdraft protection offered by the banks. That works out 2400% APR. Bankruptcy filings in GA and NC have soared since payday loans have been banned. Numerous studies show that consumers are worse off without this credit option. The greatest percentage of customers who use this product are not "the poor". Try doing unbiased research. George Mason University recently published a study that backs these facts up. CBS chose to ignore it for sensationalism. Shame on you.
Payday loans as a retail financial product, becomming mainstream is new to most people, just like leasing a car it is not for everyone.
Payday loans just like an atm machine have their place. In a free enterprise system if payday loans were not needed they would not be there. Let economics be economics and let customers choose.
Mike Steele
Your a closet communist along with the rest of the crew at CBS (Communist Bullcrap System). Here is another classic example by the media where they try to paint these lenders as the source of middle America''s problems. A $300 loan is the downfall of America? Yeah, right! We can blame all social ills on these loans and Barry Obama is a "seasoned politician."
I''m dying to hear what the socialists on the comment board are proposing we as a nation do to replace the need for short-term loans? I''m sure its some great mix of private enterprise and heavy government sponsership (kind of like the VERY SUCCESSFUL gov''t programs Freddie Mac and Fannie Mae).
The cash advance industry was spawned as an alternative to exorbitant bank fees and consumers have voted with dollars by utilizing these lenders. It is appalling that CBS failed to report this and also did not utilize any industry comments in their news (ha ha) story.
One sided, inaccurate and incomplete stories is the reason that CBS is ranked dead last in the evening news.
It is easy to throw words around when one doesn''t take the time to understand an issue. And when the word "predatory" comes out regarding payday loans, it is usually from an uninformed, lazy point of view that chooses to listen to what others have to say rather than researching an issue for his or her self.
Payday loans would not exist but for consumer demand. A payday company cannot advertise that "you need a payday loan!" Rather, all a company can do is make consumers aware of the ALTERNATIVE. Then the consumer can make a choice.
Critics of payday loans and the companies, by suggesting it is predatory, insults the consumers that intelligently weigh their alternatives, and make a selection.
It is easy to throw words around when one doesn''t take the time to understand an issue. And when the word "predatory" comes out regarding payday loans, it is usually from an uninformed, lazy point of view that chooses to listen to what others have to say rather than researching an issue for his or her self.
Payday loans would not exist but for consumer demand. A payday company cannot advertise that "you need a payday loan!" Rather, all a company can do is make consumers aware of the ALTERNATIVE. Then the consumer can make a choice.
Critics of payday loans and the companies, by suggesting it is predatory, insults the consumers that intelligently weigh their alternatives, and make a selection.
It is easy to throw words around when one doesn''t take the time to understand an issue. And when the word "predatory" comes out regarding payday loans, it is usually from an uninformed, lazy point of view that chooses to listen to what others have to say rather than researching an issue for his or her self.
Payday loans would not exist but for consumer demand. A payday company cannot advertise that "you need a payday loan!" Rather, all a company can do is make consumers aware of the ALTERNATIVE. Then the consumer can make a choice.
Critics of payday loans and the companies, by suggesting it is predatory, insults the consumers that intelligently weigh their alternatives, and make a selection.
She could get out of the cycle if she were to get off her butt and take on a second job at night for a short time or work weekends. Not only do you earn extra money, but you cannot spend money while you are working, so you save MORE!
The two-week limit is not the only repay period. Many who are on monthly incomes ... retired, SSI, elderly etc. are allowed to borrow too with the monthly payback.
These people do not have the discretionary funds to be or additional incomes to return to buy out of the payday loan cycle. And if you do not repay the loan, the check IS taken to the bank, you do get the dreaded ISF fee anyway. Plus a uncomfortable situation with your payday check-holder.
That, in fact, is the only way to break the cycle and get out of the trap.
Isn''t there something somewhere in the Old TEstament about not loaning money at interest to fellow countrymen ?
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