Payday Loan Times

According to The Birmingham News, Alabama residents last year paid $225 million in extra fees for small, short-term payday loans, the fifth highest amount in the country, based on a report released Thursday by a consumer advocacy group that opposes predatory lending practices.

Center for Responsible Lending found American families last year paid $4.2 billion in fees on such loans. The loans typically charge a minimum fee of $15 or more per $100 borrowed with a full repayment of the borrowed amount due in two weeks.

Payday cash advances, basically two-week cash advances on paychecks with fees up to 17.5 percent in Alabama, have the equivalent of an annual interest rate of more than 400 percent and usually are rolled over several times instead of being paid back quickly.

The typical borrower pays back $793 for a $325 loan.

Opponents argue such terms prey on those who can least afford them; advocates say no fax needed payday loans fulfill a legitimate need for people who need emergency cash.

“We think payday lending is a defective product,” said Jean Ann Fox, consumer protection director at the Consumer Federation of America. “They are based on enticing customers to write checks when they don’t have money in the bank to cover them.”

The report estimated that 90 percent of payday loans nationwide go to borrowers with five or more such loans each year, and the $225 million in “excessive” fees in Alabama represented 90 percent of the total no fax payday loan fees collected in the state.

Alabama and 38 other states allow payday loans. Eleven states have clamped down on the industry, such as capping interest rates at 36 percent. Congress this year put just such a cap on payday loans to military families.

In Alabama, 1,201 cash loan stores lent more than $1.4 billion last year.

Julian Bond, chairman of the NAACP, said the civil rights organization opposes the practice because it tends to prey on low-income minorities.

“There’s a market for all kinds of products, financial and not, and when those products are proven harmful to the public consciousness, the states have stepped in to bar or prohibit them,” Bond said.

The payday loan industry took issue with the report, arguing that its credit products are a reasonable alternative for people who need cash quickly and that most of their customers are employed, responsible people who pay off their cash advances on time.

“Contrary to the (Center for Responsible Lending’s) spin, responsible uses of the payday product provides consumers firm footing to overcome unexpected financial circumstances,” said Ken Compton, CEO of Advance America.