Payday Loan Times

Aziza Gary grew increasingly uncomfortable.

Here she was, a lending specialist for a credit union in Baltimore, advising a member to steer clear of payday loans. Gary knew these loans were a bad deal from her years in banking. She even briefly worked for a company offering payday loans and had seen consumers unable to escape the cycle of these high-cost, revolving resources.

But the more the credit union member gushed with gratitude for Gary’s sage advice, the more Gary squirmed.

The truth was Gary had three outstanding payday cash loans. A big chunk of each paycheck went to finance these loans. She was behind on her rent and utilities. And the single parent barely was able to put food on the table for herself and her young daughter.

“In the back of my head I’m saying, ‘You’re such a hypocrite. Take your own advice,’” says Gary, 31, who works for the Municipal Employees Credit Union.

Her story is a firsthand account of the intoxicating world of payday advance loan lending and the hard journey out of it.

Payday loans are small cash advances on a borrower’s next paycheck. Their hefty fees translate into annual interest rates of several hundred percent, if not more.

Maryland essentially blocks payday lenders from setting up shop here by capping the interest rate that can be charged on loans. But the Internet opens the door to payday lenders from other states and countries that can easily sidestep any state’s consumer protection laws.

“[Online payday loan] lending makes it very, very easy because you do that in the privacy of your own home,” says Jean Ann Fox, director of consumer protection for the Consumer Federation of America. “Once you start, you get onto a debt treadmill.”

There are no firm figures on how much people borrow through payday lenders, although estimates range from $28 billion a year to nearly $48 billion.

Gary’s troubles began about two years ago with an e-mail from a personal cash loan lender offering fast cash. She was struggling to make ends meet on her $22,000 salary.

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Eileen Ambrose, a reported for The Baltimore Sun, recently wrote an opinion piece for The Morning Call. In it, she prasied recently payday loan restrictions to the military. Here it is, paraphrased:

Two new laws seek to protect members of the military from being taken advantage of financially on the home front.

One aims to prevent agents and brokers from using misleading tactics to sell high-priced insurance and investments to troops. The other caps the annual interest rate that regular and faxless payday advance lenders can charge service members for advances on their paychecks.

The help is needed. Thousands of troops are so far in debt that they are losing their security clearances and, as a result, are unable to serve overseas.

Regulators say many new service members are financially inexperienced, making them vulnerable to sales pitches from those selling inappropriate or costly products. A no credit check payday loan is certainly an example of this.

”They are coming in many times right after high school. They are young and many times they are young marrieds. Chances are the military is their first real paycheck,” said Joseph Borg, president of the North American Securities Administrators Association. ”Anyone at that age, whether in the military or not, is a novice when it comes to financial education.”

Concern about troops’ finances has been growing in the military and Congress. A 2004 investigation by The New York Times that found young soldiers were being sold confusing, unsuitable and expensive products prompted the recent payday cash advance legislation.

A provision of the Military Personnel Financial Services Protection Act signed by the president this month tackles such payday loan lending, where workers get an advance on their paycheck through a short-term loan.

Payday lenders often have offices outside military bases. Fees charged often come out to an annual percentage rate of several hundred percent.

The provision caps the annual interest rate a provider of bad credit payday loans could charge a service member at 36 percent. This will take effect by October 2007.

Ludwick said the new laws will go a long way toward protecting troops because there will be more supervision of people soliciting on bases. Also, the caps on cash loans will reduce ”the likelihood that many service members will get in over their heads.”

It seemed like Angela and Edward Johnson’s dream of owning their own home would only remain just that. A dream.

When the child care professional and retired mechanic went house-hunting with a real estate broker, he took one look at their poor credit and flatly predicted they’d never be approved for a home loan. He even suggested the Johnsons find someone else to apply for one on their behalf.

So when the Johnson’s finally moved into their new Suitland, Md., home just outside Washington, D.C. in May, Angela Johnson was downright giddy when they ran into the broker.

“I saw him. And you know I was so proud to tell him, ‘You know we bought a house and let me tell you what the interest rate is,’” she said.

She’s got a reason to beam with pride. The Johnsons beat the odds that are statistically stacked against low-income African-Americans, the Baltimore Times reports.

Research from the Brookings Institution shows that on average, lower income homeowners (defined as those making $30,000 or less) pay interest rates as high as nearly 7 percent, meanwhile people with incomes of $120,000 or more paid a rate of 5.5 percent. The Johnsons were able to secure 4 percent.

So how did they do it, and why haven't others?

(Read on …)

Should you take out a payday loan? How are the fees calculated? An article from the Daily Times (the newspaper of the Eastern Shore of Delaware, Maryland and Virginia) examines the payday loan industry and breaks it down for consumers who may be curious about it.

From the basics of the payday advance business to a checklist for consumers, this column is worth taking a look at and the Times is happy to pass it along to you.

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HOW PAYDAY LOANS WORK
Let's say you need $200 cash as of tomorrow, April 18, but your payday is in two weeks (May 2). A company will agree to give you a loan by the end of the business day, so long as you write a post-dated check (or agree to an instant wire transfer, if you use a faxless payday loan agency) for the $200 plus fees, due on May 2.

The rates of interest vary, but you're probably looking at 15-20 percent of the loan amount. In this case, $35-40. For the purposes of this example, let's say you owe $40, making the total amount $240.
(Read on …)