Payday Loan Times

The Eagle Tribune recently talked to Michael McKeon. The Masschusetts resident knows 25 percent interest each month is high, but when asked why he took out a $500 loan anyway, he just shrugged a little and said, “Desperate times. …”

McKeon, 27, and his wife Rachel, 30, recently put up the title of their only vehicle - a 1994 Chevy van - as collateral against a loan. They were going to be short on their $1,500 mortgage payment without it.

The couple took a friend’s recommendation and went to New England Auto and Payday Loans Inc., a Salem company offering high-interest cash loans leveraged against car titles.

The company, which declined to comment for this article, doesn’t do credit checks and can usually make cash available the same day a person applies.

In Southern New Hampshire, businesses offering fast cash abound. Just down the street from the storefront where the McKeons got their loan is LoanMax, another company that lends against car titles. The McKeons didn’t go to LoanMax because, they said, that company requires borrowers turn over a spare key to make repossession easier.

That payday loan company also declined to comment.

Across from LoanMax is Cash for Gold, a jewelry dealer that lets customers sell or pawn their jewelry. And just a short drive in the other direction is an Advance America branch, offering up to $500 instant payday loans leveraged against a personal check that the company promises not to cash until repayment comes due.

A problem with payday loans: Credit counselors generally say fast cash schemes - particularly payday and title loans - are a bad idea.

“It’s about as dangerous a proposition as it gets,” said Nick Jacobs, spokesman for the National Foundation for Credit Counseling in Silver Spring, Md.

Payday advance and title-lending industry representatives counter that short-term loans are a good choice for people who otherwise face bank overdraft fees, credit card late fees or worse.

“Our products and services present rational, cost-competitive alternatives,” said Jamie Fulmer, spokesman for Advance America, a national chain that offers paycheck advances.

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Alan L. Feld is the Maurice Poch Research Professor at the Boston University School of Law. Let's just say he isn't a major supporter of military payday loans.

In a recent article in The Providence Journal, Feld discussed the major drawback of these cash advances: if a sailor is unable to pay off the loan could actually lose his security clearance, based on of financial mismanagement of personal debts. Without clearance, the sailor cannot be deployed overseas. It's not difficult to see how severe this can become.

For many reasons, military personnel are high profile targets for providers of faxless payday loans such as these; they're often financially unsophisticated and far from family and friends. With full disclosure of the interest rates and compliance with Rhode Island's licensing requirements, a payday loan service can operate within the law here.

So, how can military payday loan problems be fixed? In one approach to the situation, Congress could prohibit high interest rates and set a limit on how much instant payday loan services may charge. A Senate amendment recently added to the Defense Authorization Bill of 2007 would cap the interest rate for loans to armed services members and their dependents at 36 percent; the interest-rate limit must still pass the House before going to President Bush for his signature.

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The Massachusetts Division of Banks is ordering 48 payday loan companies to cease operations in the state, reports today's Boston Herald.

The Bay State's latest crackdown on the high interest-rate loan agencies is aimed to protect middle-to-lower-income residents.

“These companies are not licensed to offer loans to Massachusetts consumers because they charge interest rates far in excess of what our small loan law allows,” said Commissioner of Banks Steven L. Antonakes.

As part of its action, the Division of Banks also sent letters to Boston's craigslist website, as well as the Boston Herald, to stop running ads for companies offering payday advance loans, which typically involve high-risk, high-interest loans to those who need cash before their next paycheck.

In a statement yesterday, the Herald said that it will review the state’s request in light of recent developments. Other newspapers have been asked in the past to stop running such ads when the state determines a lender is not licensed to do business in Massachusetts.

All 48 lenders cited by the division are based outside Massachusetts, but still offer faxless payday loan service to Bay State residents via the web. Last year, the division ordered 91 payday loan institutions to cease all operations due to excessive interest-rate charges. States such as nearby New Hampshire have no caps on the interest lenders may charge.

Most people are familiar with Craig's List. If you need a new couch, peruse the site! Looking for an apartment? Sign on today? Hoping to apply for a faxless payday loan? You've come to the right place!

There's just one problem with the last item listed: cash advances are illegal in many states. For instance, over 40 ads were on the site last week for payday cash advance providers in Massachusetts. According to the Division of Banks, however, payday loan lending isn't permitted in the state.

It plans on punishing violaters, but this strategy for circumventing the law is a difficult one to track. Anyone can just sign online and take out a cash loan. It's an issue worth keeping your eye on.