Part II: Payday Loan Investigation

(CBS)  CBS News Investigative Producer Laura Strickler wrote this story for CBSNews.com with additional reporting from Lauren Zelt.

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CBS News reported this week 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

[cleondann]

Payday loans are popular, but many people still don?t understand how they work or just listen to what they hear from friends and think that is how it is done. If a person hears of a bad experience, they think that all payday loans have the same experience, but often each individual has their own circumstances and what doesn?t work out for one person may be just what another person needs.
http://www.paydayau.com.au

[CaraLowe]

The money that a <a href="http://www.actionpaydayloans.com">Payday Loan</a> offers for many consumers is the only help that they can get. The number of lenders who turn their backs on many of the lower class consumers is large, and this makes it very important to ensure that everyone has access to money. By placing harsh restrictions on payday loans there will be people who have financial needs that are ignored. Who will help these people? Who is looking at the excessive late fees that credit card companies charge? Who is looking at the over the limit fees that they charge? Who is looking at the NSF fees that banks charge? These fees often add up to far more than the fees for a payday loan, yet those fees are accepted because "traditional and honest" lenders are the ones charging them and even the rich have to pay as well.

[jenjons37]

I also used to work for a payday loan company. I used to think that we were helping people but the longer I worked there, the more I saw that we weren''t. The fact is that these companies are doing more harm than good. They are not being used for what they were intended for such as an unexpected bill or car repair, they are being used to live on. And, whether anyone wants to admit it or not, they are a revolving cycle of debt and very hard to get out of once you take out that first loan. The majority of our customers were in this cycle of debt and as soon as they paid back, they were at the store first thing in the morning to reborrow. In a way, it is like preying on people''s vulnerability and addictive because they can''t stop. It''s too easy for them to come in and walk out with cash. So, you can continue to think you are helping people but you aren''t, you are contributing to their debt. I had to quit working in this industry because I stopped believing that I was helping people and saw it for what it truly is. And, there are places without these payday loans and people get along fine without them and have learned to live without them. What did people do without these places? Years ago, there were none of these kinds of places and families consisted of more children. How did they get along? They budgeted and that can still be done today. Glad something is finally being done about it. I think these places have made more than enough money off of hard-working people.

[lady0909-2009]

I have worked for a payday loan company. The simple fact is, a payday loan should be a last resort. It is a cycle that most cannot get out of. The EPP does help, but the companies don''t want it advertised to people. We can blame it on the economy,gas prices, etc. But, there are other ways to budget. We are never willing to give up our little luxuries. I don''t like giving up certain things, I''m as guilty as anyone. But, as a country, we need to be more concerned with credit card debt. Are we just buying the necessities we need? I doubt it. And people buying houses they can''t afford! This is about personal responsibility, People. It''s easy to blame someone else for our problems. We need to get back to enjoying the simple things in life. Stop trying to buy your happiness with material things!

[drbrab]

I work in TN for a PayDay Loan CO.I can''t believe that you think that we are doing more harm than good! I take great pride in knowing I can help a family that just spent over a quarter of their weekly pay check at the gas pump and have no money to buy food for the table!I inform my customers about the EPP plan.several go on the plan and do not have to reloan and some do have to but all are thankfull we are there in their time of need,banks and our goverment sure aren''t jumping to help them.And until some else steps up to the plate for the struggling over worked and under paid I will continue to love helping them and letting them know I am there for them.When was the last time you brought $300 a week home for a family of 4?!Shame on you for judging these places on some phone calls instead of asking the pepole who have to use our services!.A very small % have to keep using our service to the extent that you think.Do some real research before you start pointing fingers.Pedatory and addictive really?We are not selling drugs!A little out landish and extreme don''t you think?! As a person of power you should be thinking of. over priced gas that we are paying for and yet the price to produce it and transport doesen''t eqaul the price at the pump, bring our men and women home,health care,the homeless Imagration ect.. lets fix the big problems first then you can point fingers about our suffering nation!
Denyse B. TN USA