Tuesday, February 6, 2007

Coming soon to a strip mall near you: A neon sign of the times, promising a quick and easy fix to the financial problems that ail you.

“There are more [fast payday advance] lenders and check cashers than there are McDonalds, Burger Kings, Targets, Wal-Marts, J.C. Penneys combined,” sociologist Howard Karger said.

It is a $40 billion industry.

No cash, no credit — big problem, according to some.

“You can have interest of up to $1,000 just on a $200 payday loan,” Karger said.

It’s estimated that faxless payday loans drain nearly $300 million in earnings from Texas workers each year, $4.2 billion nationwide. It’s collected from those who can least afford it - for the most part low-income, working class people who are financially strapped but don’t qualify for traditional loans.“They’re robbing you,” Bernice Labrie said.

People like Labrie.

Although she works 40 hours plus a week as a janitor, she was still having trouble making ends meet. Then she ran across an ad in the Greenpages and decided to take out a $200 instant payday loan.

“I needed some extra cash and I said, hey, I can go do this,” she said.

“Let’s say you want to borrow $200,” Karger said. “You give them a check for $200, and they’ll give you $160 back. It’s usually a two week loan.”

Few actually manage to pay it back in that time.

The industry will tell you it provides crisis cash, a one shot deal to make it through to the next payday. But statistics show that payday lenders collect 90 percent of their revenue from borrowers who can’t pay off their cash advances when due, borrowers who continue to roll their loans over and over and over.

“Most people have to renew these loans eight, nine, 10, 12 times before they’re able to pay it off,” Tomlinson said.

All the while, interest is building.

“Interest rates that run into the hundreds of percent, and in some cases to the thousands of percent,” Karger said.

Critics say you’d be better off turning to your local godfather for help. The rates are actually lower from a loan shark on the street then they are from the quick payday loan lender. Remember that $200 loan Labrie took out?

“She paid a total of $400 to get $200, and it was over a two-month period,” Tomlinson said.

And when she defaulted on a second payday loan, “they went so far as having a lady named Sam calling me on the job threatening to come on my job for a felony if I didn’t pay them,” she said.

But here’s the one thing Texas payday loan lenders don’t want you to know: If you’ve defaulted on a payday loan and are led to believe you’ve committed a crime:

“I will say bluntly that no, you haven’t,” Tomlinson said. “That’s not true, and the whole industry survives because these consumers are convinced if they don’t pay, they’re going to be accused of a crime and arrested at their work. And it’s not true.”

Because you’ve given them what amounts to a post-dated check, and post dated checks for the most part are not subject to criminal prosecution.

“They’re promising not to touch your account for two weeks,” Tomlinson said. “They know you don’t have that money or you wouldn’t have come to them in the first place, so there’s no crime. No crime at all.”

They can harass you by phone. They can even threaten to sue for a late payday loan payment.

“But they can’t do something they’re not allowed to do, and one of them is to threaten to have you arrested and charged for a crime you didn’t commit,” Tomlinson said.

That said, whatever your hardship, you might do well to follow the advice of someone who’s been there and paid for it dearly

“Just do without, or see if you can find a friend to borrow from, because you don’t get thru paying a payday loan,” Labrie said. “You do not.”

This entry was posted on Tuesday, February 6th, 2007 at 2:08 pm and is filed under Texas.