Academic

The High Cost of Poverty: Washington Post

By Kevin Maillard

Article here.  (Thanks to Prof. Melynda Price (Kentucky))

Credit. The poor don't have it. What they had was a place like First Cash Advance in D.C.'s Manor Park neighborhood, where a neon sign once flashed "PAYDAY ADVANCE." Through the bulletproof glass, a cashier in white eyeliner and long white nails explained what you needed to get an advance on your paycheck -- a pay stub, a legitimate ID, a checkbook. This meant you're doing well enough to have a checking account, but you're still poor.

And if you qualify, the fee for borrowing $300 is $46.50.

That was not for a year -- it's for seven days, although the terms can vary. How much interest will this payday loan cost you? In simple terms, the company is charging a $15.50 fee for every $100 that you borrow. On your $300 payday loan -- borrowed for a term of seven days -- the effective annual percentage rate is 806 percent.

The cashier says that what you do is write First Cash Advance a check for $345.50 plus another $1 fee, and it will give you $300 in cash upfront. It holds the check until you get paid. Then you bring in $346.50 and it returns your check. Or it cashes the check and keeps your $346.50, or you have the option of extending the loan with additional fees. You'll be out $46.50, which you'd rather have for the late fee on the rent you didn't pay on time. Or the gas bill you swear you paid last month but the gas company swears it never got.

Full post as published by The Faculty Lounge on May 21, 2009 (boomark / email).