Californians Pay the Most for Payday Advances
By Paul RizzoPayday Loan Writer
A report released this weeks says the use of cash loans cost Californians an estimated $365 million in 2005, more than any other state.
The industry derived 90 percent of its 2005 revenue from “trapped borrowers,” those who took out five or more loans that year, the Center for Responsible Lending said.
In California, payday borrowers took out an average of six same day payday loans.
“In spite of increased scrutiny and attempts to reform the payday industry, the industry and payday lending today remains a business dependent on keeping borrowers caught in a debt trap,” said Michael Calhoun, president of the Durham, N.C.-based Center for Responsible Lending.
The Mercury News had the report.
No credit check payday loan lenders, often combined with check-cashing operations, provide immediate cash for a high fee. In a typical example, a borrower will write a payday outlet a personal check for $300 and receive $255 on the spot. After their next scheduled paycheck, anywhere from a day to two weeks later, the outlet cashes the check and pockets the $45 difference.
California law caps such loans at $300 and their fees at 15 percent. That works out to a 390 percent annualized interest rate, assuming a two-week loan.
The Community Financial Services Association, a Washington, D.C.-based trade group for the payday industry, says these personal loans are critical tools for people with short-term credit needs. It characterized the CRL study as “misleading.”
“This rehash of flawed statistics is designed for publicity purposes, not a serious discussion of consumer lending needs,” said Darrin Andersen, CFSA president, in a prepared statement.
He did not dispute the $4.2 billion figure, saying: “The bottom line is that consumers spend $4.2 billion a year for a product they choose over the alternatives.”
The CFSA response did insist that the industry doesn’t encourage extensions of loans, noting they’re illegal in 37 states. But the CLR study did not refer to extensions, sometimes called a cash advance payday loan rollover, but “flipping,” paying off an initial loan and subsequently taking out a second.
