Short-Term Loans Can Mean Lasting Trouble

Payday Advance Loans Seem Simple, But Can Lead To Endless Cycle Of Debt

(CBS)  In the current state of the economy, about 2,600 Americans a day file for bankruptcy. Others are turning to a financial quick fix called "payday loans." They've now grown into a $59 billion industry. But six states - Arkansas, Georgia, New Hampshire, North Carolina, Ohio and Oregon as well as the District of Columbia - have now effectively banned these loans, and CBS News chief investigative correspondent Armen Keteyian looks at why.

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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.

[glennguderia]

Anyone who uses Payday Loans is crazy!

[beehive21-2009]

Shy locking is illegal, or it was ? It''s time to close them down. Who owns them, Oil companies ?

[f4ccv]

LEGAL STEALING is what it amounts too. It is white collar crime that preys on those most in need and least able to climb out of the hole that they are receiving lots of help to dig even deeper.

It 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.

[sistatee-2009]

Bary Bates didn''t realize that only the government can borrow money to "pay" debts, and never have to face the music. Uncle Sam is currently borrowing to pay interest on the $9 trillion he already borrowed. An every day he borrow some moe. An den, some moe. And eventually he juss be borrowin'' an borrowin'' til nobody got no idea how much he owe to nobody. All da while he tellin you YOU done borrow too much! Land sakes! Folks is crazy, all on crack and sh-t, and listenin'' to George W. Bush.

[netwiz1-2009]

So how was Mary Bates ''trapped'' when she knew when taking out the loan that she would have to PAY IT BACK?

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.

[ckatyc]

Choosing a payday loan is something that consumers weigh heavily when making a financial decision over more options. A $15 fee per 100 is far cheaper than the $30-45 bounced check and late fees. And furthermore, rolling over loans is illegal in most states! Payments plans are available at no cost to customers if they can%u2019t pay back their loan. Some people can go to a bank and get a $3000 line of credit, for others this is their only choice. Why should we be denying access to a resource that so many use? Keep options open.

[doodle6475]

Apparently all of you Obama supporters missed high school economics class. If I bounce a $100 check at WalMart, they charge me $30+, the bank charges me $30 . A payday lender typically charges about $15. What is the APR on $60 worth of fees on $100 VS $15? Let''s all stop trying to be nannys and let adults make decisions for themselves. All together now, it''s called CAPITALISM. Remember, it''s the basis of our country''s economic system....not stupid nannyism!

[factsnothype]

Consider this, you need $100 cash and your choices are: bounce a check, overdraft your account, pay a late fee on a credit card, or get a payday loan. The fee for choice one can be as high as $55. Choice two will cost you as much as $35 for the initial overdraft fee and in some cases you will be charged for every day that your account is overdrawn. Choice three will cost you as much as $35 plus additional finance charges. The fee for a payday loan will cost around $15 and does not carry additional fees of any kind. A payday loan fee is just that, a fee. Payday loan fees are posted in poster format and the terms are clearly understood by our customers. We are required by law to disclose the fee as an APR. Customers are only able to get one payday loan at a time from a company.

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.

[truthspeake2]

Apparently all of you Obama supporters missed high school economics class. If I bounce a $100 check at WalMart, they charge me $30+, the bank charges me $30 . A payday lender typically charges about $15. What is the APR on $60 worth of fees on $100 VS $15? Let''''s all stop trying to be nannys and let adults make decisions for themselves. All together now, it''''s called CAPITALISM. Remember, it''''s the basis of our country''''s economic system....not stupid nannyism!

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.

[x98powers]

Payday advance companies are undercutting banks. They would love to see the end of the payday lending industry. If you want to shut payday lenders down, the government should also put a cap on overdraft fees and daily negative balance fees. Are we really concerned about saving the consumer money, or could it just be the banks that are upset over losing fees to payday lenders?

[noaanhc]

These companies are nothing more than legalized
loan sharking operations and should be outlawed.

[noaanhc]

These companies are nothing more than legalized
loan sharking operations and should be outlawed.

[jon_schultz]

So this reporter visits the CFSA.net website and ignores all the information presented there, the third-party customer satisfaction surveys which clearly show that a large majority of payday loan customers benefit from and appreciate the service - http://www.cfsa.net/customer_demand.html - and his big scoop is to expose the shocking fact that two of the customers who were quoted on the website subsequently filed for bankruptcy. He should definitely win a Pulitzer Prize for that!

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

It''s called personal responsibility. Don''t spend more than you earn.

[deacon20081]

In my state if you bounce checks you go to JAIL.
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.

[ladyephesus1]

They need loan counselors put in there so they can determine if a person can afford to hold a loan.

Then they should set a limit!!

[northernneck]

Interesting piece. One sided. You did not hear any of the stories of how a payday loan has saved a family from a bad situation. More of the same from the drive by media!

[barbaraf4]

Those who take advantage of the "payday loan" availability are most likely those who understand the dynamics the least. Once you are on this cycle, your actual income becomes less an less.

This is similar to those who are willing to pay in advance to get their income tax return a week earlier.

[bigmojobone]

All the NASCAR trailer trash and welfare overspenders use the quickpay like a credit card because they dont have a card available. It''s still a way of living on credit.

[republic1776]

deacon20081,
"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!

Always look at the interst rate. Interest tables are free on the internet. Google one. Take a moment and look at how badly you''re being f**ked.

[sociald63]

greedy americans - this is ghetto lifestyle at its finest

[amunz-2009]

Where is the outcry from users of payday loans that they do not value and appreciate the service. There is a simple reason why the industry has grown so dramatically. Simply put, they fill a market need that customers appreciate - and more importantly return to use.

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

[envozalta]

My parents passed away within a month of each other 3 years ago. Needless to say, I was strapped for cash after that since I had to take off so much time off from work. I took out about six of these loans. For me, they were definitly a God send. They got me through a rough time until I was able to get back to work. You just have to know how to manage these loans into your budget.

[republic1776]

HarpoBarx,
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!

[swohlford1]

I understand everyone saying leave the industry alone and let people decide what they want to think about payday loan companys.But I worked in one for almost a year and most of these people that come in there get stuck in the loop of that they cant get out of it.For example people that are on SSI they get paid every month, and they are in there every mth.They say that an average person does about 8 loans a year, that is not so.Most SSI customers do loans 12 times a year!And most of these SSI customers are eldery people in there 60 to 80s.Poss older!They trap people thinkn that its a easy debt solution its not.I had one pay day loan when I started with that company then when i started my job i had to pay off the one loan that i had with them and i had to get another one and then another one.I have 3 that i am unable to pay because of my limited income!I believe that if I never started that job i would not have 3 loans out that I have now.No one put a gun to my head or twisted my arm i was straped for cash from payday to payday like every other american in this country.after working in one payday company after my experience i will never work for another payday company again.sure the income was decent but they are crucked and deceving to customer and there employess.Theyll trap u in cycle that youll probably not get out of it until u get ur taxs back or u just let the loan go and make payments on them.my advice for people who is looking for help dont go these places!

[missmewitdat]

payday loans should be outlawed in every state !!! it should be banned,hell most payday loans charge $15-$30 per $100 plus there fees and what is posted in most stores is not all of the fees!! i know of two here in tx,that say you are buying a pc a land.so a law must be passed to stop all of this!! shut them down!! people need to do what they did before the payday loans stores,go without and wait until your next payday.

amunz. You''re a liar and know you are. People that use your services are not intelligent and you take advantage of weakness and desparation in some souls. Did Allah teach you that too?

[missmewitdat]

payday loans should be outlawed in every state !!! it should be banned,hell most payday loans charge $15-$30 per $100 plus there fees and what is posted in most stores is not all of the fees!! i know of two here in tx,that say you are buying a pc a land.so a law must be passed to stop all of this!! shut them down!! people need to do what they did before the payday loans stores,go without and wait until your next payday.

[republic1776]

missmewitdat,
I disagree.
United "States"
USSR failed, this is why they are states again.

rebublic1776. Very nice name. What does 1776 mean to you? It''s an honest question.

[x98powers]

ok missmewitdat....let''s say you have a 3 checks floating out there that are going to bounce unless you get $100 to deposit and your payday isn''t for 10 more days. My bank Charges $34 for a bounced check, so that''s $102 that I will have to pay. I could go to a payday lender and get $100 and pay $15 in fees. That''s $87 I would save by going to these "evil" people. I think we should personally appoint you to devise a system to teach people how to budget and not bounce checks. Until you can do that successfully, I think payday advances are a viable solution for instances like this. I suppose you are against gambling and expensive hobbies also? People will abuse anything. Please stop attacking an industry that can help people out if they borrow responsibly.

[republic1776]

HarpoBarx,
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.

[hope_fate]

Payday loan companies do not want to trap or sucker their customers. Thats why most of them have you fill out and application stating where your funds are going EVERY month and then loan you a percentage of what you should have left.
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.

[hope_fate]

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.

Look at the syntax of the defenders of these scams like x98powers and republic1776. Their defense of their scam was run through a spell checker but the cadence is wrong. Not American. The jews assimilated in this country. Maybe someday muslims will too. I hope so.

[jeffcolbert]

So people go bankrupt over a $200 loan? riiiiight. I am sure it wasn''t their credit cards, mortages, car loans etc. It was that one $200 loan. genius! Who cares what 2 adults contract to do? If the woman cant pay it back, then the comapany doesnt get paid. Who loses?? What a bunch of nannies.

[blk_dog1130]

Dan Rather was pushed out for yellow journalism exactly like the same practiced tonight with the payday lending story. Katie should follow for allowing her name to be connected with a story like this.

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.

I''ve never used a shylock-payday loan and don''t know anyone who has. But, simple math tells me you are predatory scum. You prey on the weak. Your type is worse than lice. How do you sleep?

[msteele100]

People are choosing to use payday loans. The same they are choosing to smoke, the same they are choosing to buy name brand food vs store branded. Should we force certain income people to use coupons and other not. This is a choice that people make. Financial literacy is a problem. Not just for those whom society lables as "poor". When costs are soring for many of the everyday items, choices have to be made. A payday loan is not the right choice all of the time. But for those who need to solve a short term problem, a payday loan can be the right choice. The immediate alternatives, the TODAY alternatives, payday loan, borrowing from friends, bouncing a check, utility shut off, not buying medication, are some alternatives. The purest of people say that people should not have gotten themselves into this situation and payday lenders are taking advantage of them. Please, look at the facts payday lenders are mostly banked customers, they have income, and they have used other alternatives and choose payday loans.

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

[freedomfrom-2009]

HarpoBarx:

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).

freedomfrom. Yeah, That''s me. A closet communist. Che and me used to play ping-pong with Mao. You caught me. You''re quite a sleuth.

[omega39-2009]

Interest rates used to be capped at 18%, this is a much better rate of return than you and I will ever get by saving, they should bring it back. Oh, and the BS fees from the banks, they should be disallowed as well.

[jaymarch1]

CBS continues in the vein of Dan Rather, incomplete, inaccurate, un-researched and downright unprofessional stories. This story completely ignored the facts about cash advance loans. There have been several studies conducted by the Federal Reserve and by prominent universities that conclude that these loans save consumers billions of dollars when compared to bank fees. Why is this fact ignored?

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.

[dnickers1]

It is unfortunate that CBS and reasonably educated people will not take the time to review the facts and information related to payday loans. What is easy to do is point to an annual percentage rate (APR) that is high. What they choose to ignore is that a loan is for only 2 weeks. And that the alternative to a payday loan is for a consumer to go ahead and bounce a check. The average bounced check is about $70, for which a consumer is charged an average of $25 by the bank and another $20 or so by the vendor. So, let''s slap an APR on that transaction. For those that can''t compute, it is over 1,000%, more than 3x greater than a typical payday rate.

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.

[dnickers1]

It is unfortunate that CBS and reasonably educated people will not take the time to review the facts and information related to payday loans. What is easy to do is point to an annual percentage rate (APR) that is high. What they choose to ignore is that a loan is for only 2 weeks. And that the alternative to a payday loan is for a consumer to go ahead and bounce a check. The average bounced check is about $70, for which a consumer is charged an average of $25 by the bank and another $20 or so by the vendor. So, let''s slap an APR on that transaction. For those that can''t compute, it is over 1,000%, more than 3x greater than a typical payday rate.

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.

[dnickers1]

It is unfortunate that CBS and reasonably educated people will not take the time to review the facts and information related to payday loans. What is easy to do is point to an annual percentage rate (APR) that is high. What they choose to ignore is that a loan is for only 2 weeks. And that the alternative to a payday loan is for a consumer to go ahead and bounce a check. The average bounced check is about $70, for which a consumer is charged an average of $25 by the bank and another $20 or so by the vendor. So, let''s slap an APR on that transaction. For those that can''t compute, it is over 1,000%, more than 3x greater than a typical payday rate.

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.

After the collapse of banks and subprime forecolsures you Payday f+ ks will be regulated to 29% per annum. You know it and you''d better find another line of work or sell the Lexus. The fun is over.

[edintex]

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.

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!

[f4ccv]

Payday loands are predatory. And ''rolling them over" may not be legal, but effectively if you pay it back one day and return in 25 hours, that is what really has happened.

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 ?