Bankruptcy

More in Middle Class Using Payday Lenders

By J. Michael McBride

For consumers living paycheck to paycheck who have unexpected expenses arise, a payday lender might be an easy solution. These payday lenders, who did not exist in 1990, now account for 25,000 outlets today. Consumer groups advocate against these payday lenders due to the astronomical interest rates charged--up to 439% annually. These groups contend that the average payday loan is renewed eight times. This means that the cost of a $325 advance costs the consumer $792. The lenders argue that the payday loans are not meant to be renewed, but most consumers who need to borrow against their next paycheck cannot afford to pay it back, and therefore, have to continually renew the loans.

There has been legislative efforts in over a dozen states to either cap the interest rates the payday lenders can charge to consumers or not permit payday lending at all. Congress put a limit on the interest that can be charged by payday lenders to members of the armed forces to 36%, last year. As such, these Americans are unable to obtain these types of loans.

Here are some interesting statistical information concerning this growing industry:

- In California consumers borrow about $2.5 billion a year from payday lenders
- Consumers pay $8 billion a year to borrow at least $50 billion from payday lenders
- Check Into Cash founder, W. Allan Jones, fortune has been estimated at $500 million
- Advance America's revenue last year was $709 million

Americans like simple and easy. All it takes to get caught up in this vicious debt cycle is a pay stub from your employer, a driver's license and a checking account. The consumer writes a post-dated check for $300 and walks out with $255 in cash, less the $45 fee, with no credit check. What most American consumers do not realize is that most credit unions are now offering short-term, small-dollar loans with annual interest rates as low as 12%.

You can read the entire article at:
http://www.latimes.com/business/la-fi-payday24-2008dec24,0,3268869,print.story

Chandra

Full post as published by Texas Lawyer Blog on December 29, 2008 (boomark / email).