Those of us with traditional bank accounts and a credit card or two in our pockets tend not to notice the rapid proliferation of payday loan stores in our community. Whether out of sound financial planning or just plain luck, we have no need for fast cash to offset the occasional crisis.When the car breaks down, we take it to the shop and write a check. If the heater goes out, we can always put it on the card.
For people with bad credit or insufficient funds to maintain a bank account without piling up overdraft fees, however, these payment options don't exist. Without such options, the promise of ready money begins to have a powerful appeal.
That's when the signs that some people simply ignore start to cry out to the person who is strapped for cash. And judging by the names of the payday loan stores, as well as their advertising, the process is both fast and easy.
In Ponderay alone -- where as of this month there are now five payday loan businesses located next door to or very near Wal-Mart -- one can choose to borrow from Quik Cash, EZ Money, the Cash Store, the Money Depot or Check 'n Go. Only minutes away in Sandpoint, there are another four payday lenders clustered next door to or very near the Goodwill Industries thrift store
No credit check. No waiting. All it takes is a recent pay stub, a driver's license and the ability to write a check. You can borrow up to $1,000 today in what one lender advertises is "a smart way to get cash."
How Payday Loans Work
Let's say you have car problems and the mechanic has estimated repairs to be about $500. You can borrow that amount -- quickly and easily -- by writing a check to the payday lender in the amount of $600, or a rate of $20 for every $100 you borrow. The lender holds the check for two weeks -- your next payday -- at which time they deposit the check or you can redeem it for cash.
Some consumer advocates argue that the lending rate is too high and should be capped at a significantly lower amount. The payday loan industry points out that these are high-risk borrowers and, accordingly, the interest rate is both necessary and appropriate.
"We've already got an interest rate cap -- it's 20 percent," said one staffer at a payday loan store in Ponderay, referring to the rate-per-hundred-borrowed figure. "Of course, our annual rates are right up there."
In the spirit of full disclosure, it's helpful to look at our car repair loan scenario in terms of the annual percentage rate (APR). After all, that's the rate banks and credit card companies use to calculate loan repayment schedules, so it makes sense to use it here, as well.
"It doesn't sound like much when you think of it as $20 per $100," said Jean Ann Fox, director of financial services and a consumer protection advocate for the Consumer Federation of America. But that's 520 percent APR if you get two weeks to pay it back.
"The payday loan industry complains about having to quote the annual percentage rate to borrowers," she added. "I'd complain too, if I were charging more than 500 percent interest on a loan."
Where Idaho Stands
The Gem State is one of only eight in the nation that have not either prohibited payday loans within their borders or imposed tight restrictions on interest rates and loan terms. In Idaho, the industry is regulated by the Department of Finance, which requires that lenders disclose dollar rates and APR, but currently places no cap on how high those rates might climb.
Calling that description "partially accurate," the department's director, Gavin Gee, said the fact that the state has no usury statute is the primary reason there are no limitations on fees.
"It's a very risky business, because they don't take collateral," Gee explained. "Which is a big reason why they charge high interest rates."
The Idaho Department of Finance is limited in its ability to regulate payday lenders, overseeing only the licensing of those lenders and monitoring the reporting process once a business license has been approved -- a process that usually takes about 30 days. The department is also working with the federal government to impose a 36 percent APR cap for loans to military personnel, but, for the average borrower, state regulations spell out that "finance charges are allowed as agreed upon by the parties to the agreement."
In other words, the lender may charge as much interest as the borrower is willing to pay, whether or not that borrower understands the terms.
"Essentially, that's no rate cap at all," Fox said. "Idaho needs to put some meaningful usury restrictions in place to protect low-income families from rate gouging."
Proposed Legislation
As of this week, Sen. Shawn Keough, working with Rep. George Eskridge and other legislators, is in the process of drafting proposed legislation that would place Idaho among the ranks of states that impose tighter restrictions on payday loans.
"I have pledged to work on this issue to strengthen Idaho's regulations and I am working on crafting a bill that puts some restrictions in place to help the consumer," the senator said.
Keough was first approached by the Community Action Partnership office in Sandpoint, which also administers the Circles Initiative -- a local coalition designed to help individuals work their way out of poverty while they learn to create a budget and save money for emergencies.
Brenda Hammond, who works a Circles Initiative coach with families in the poverty fighting program, said the senator came to the group for input and told them she would be willing to introduce legislation. Among the recommendations proposed were and APR cap of 36 percent, a rate limit of $5 per $100 borrowed, restrictions on the number of loans an individual could have out at one time and a cooling-off period of 60 days between loans, so that borrowers would not be allowed to "roll over" payday loans and accrue further debt.
At present, Idaho allows consumers to roll over a payday loan up to three times. When that happens, the cycle of debt can become insurmountable for many low-income borrowers.
"I was working with one family to help them create a household budget and learned that they had two payday loans out," said Shirley Paulison, community engagement liaison for CAP. "They were paying more than $300 every payday -- over $600 a month -- to try and cover those loan payments."
According to the Center for Responsible Lending, a consumer advocacy group based in North Carolina, the payday loan industry depends heavily on repeat business -- particularly so on "flipped" loans that roll over the principal amount for additional fees at high interest rates. On average, the center reported, borrowers who use this approach will be forced to pay back almost $800 on an original principal amount of a little more than $300.
source:http://www.bonnercountydailybee.com/articles/2008/01/25/news/news01.txt
For people with bad credit or insufficient funds to maintain a bank account without piling up overdraft fees, however, these payment options don't exist. Without such options, the promise of ready money begins to have a powerful appeal.
That's when the signs that some people simply ignore start to cry out to the person who is strapped for cash. And judging by the names of the payday loan stores, as well as their advertising, the process is both fast and easy.
In Ponderay alone -- where as of this month there are now five payday loan businesses located next door to or very near Wal-Mart -- one can choose to borrow from Quik Cash, EZ Money, the Cash Store, the Money Depot or Check 'n Go. Only minutes away in Sandpoint, there are another four payday lenders clustered next door to or very near the Goodwill Industries thrift store
No credit check. No waiting. All it takes is a recent pay stub, a driver's license and the ability to write a check. You can borrow up to $1,000 today in what one lender advertises is "a smart way to get cash."
How Payday Loans Work
Let's say you have car problems and the mechanic has estimated repairs to be about $500. You can borrow that amount -- quickly and easily -- by writing a check to the payday lender in the amount of $600, or a rate of $20 for every $100 you borrow. The lender holds the check for two weeks -- your next payday -- at which time they deposit the check or you can redeem it for cash.
Some consumer advocates argue that the lending rate is too high and should be capped at a significantly lower amount. The payday loan industry points out that these are high-risk borrowers and, accordingly, the interest rate is both necessary and appropriate.
"We've already got an interest rate cap -- it's 20 percent," said one staffer at a payday loan store in Ponderay, referring to the rate-per-hundred-borrowed figure. "Of course, our annual rates are right up there."
In the spirit of full disclosure, it's helpful to look at our car repair loan scenario in terms of the annual percentage rate (APR). After all, that's the rate banks and credit card companies use to calculate loan repayment schedules, so it makes sense to use it here, as well.
"It doesn't sound like much when you think of it as $20 per $100," said Jean Ann Fox, director of financial services and a consumer protection advocate for the Consumer Federation of America. But that's 520 percent APR if you get two weeks to pay it back.
"The payday loan industry complains about having to quote the annual percentage rate to borrowers," she added. "I'd complain too, if I were charging more than 500 percent interest on a loan."
Where Idaho Stands
The Gem State is one of only eight in the nation that have not either prohibited payday loans within their borders or imposed tight restrictions on interest rates and loan terms. In Idaho, the industry is regulated by the Department of Finance, which requires that lenders disclose dollar rates and APR, but currently places no cap on how high those rates might climb.
Calling that description "partially accurate," the department's director, Gavin Gee, said the fact that the state has no usury statute is the primary reason there are no limitations on fees.
"It's a very risky business, because they don't take collateral," Gee explained. "Which is a big reason why they charge high interest rates."
The Idaho Department of Finance is limited in its ability to regulate payday lenders, overseeing only the licensing of those lenders and monitoring the reporting process once a business license has been approved -- a process that usually takes about 30 days. The department is also working with the federal government to impose a 36 percent APR cap for loans to military personnel, but, for the average borrower, state regulations spell out that "finance charges are allowed as agreed upon by the parties to the agreement."
In other words, the lender may charge as much interest as the borrower is willing to pay, whether or not that borrower understands the terms.
"Essentially, that's no rate cap at all," Fox said. "Idaho needs to put some meaningful usury restrictions in place to protect low-income families from rate gouging."
Proposed Legislation
As of this week, Sen. Shawn Keough, working with Rep. George Eskridge and other legislators, is in the process of drafting proposed legislation that would place Idaho among the ranks of states that impose tighter restrictions on payday loans.
"I have pledged to work on this issue to strengthen Idaho's regulations and I am working on crafting a bill that puts some restrictions in place to help the consumer," the senator said.
Keough was first approached by the Community Action Partnership office in Sandpoint, which also administers the Circles Initiative -- a local coalition designed to help individuals work their way out of poverty while they learn to create a budget and save money for emergencies.
Brenda Hammond, who works a Circles Initiative coach with families in the poverty fighting program, said the senator came to the group for input and told them she would be willing to introduce legislation. Among the recommendations proposed were and APR cap of 36 percent, a rate limit of $5 per $100 borrowed, restrictions on the number of loans an individual could have out at one time and a cooling-off period of 60 days between loans, so that borrowers would not be allowed to "roll over" payday loans and accrue further debt.
At present, Idaho allows consumers to roll over a payday loan up to three times. When that happens, the cycle of debt can become insurmountable for many low-income borrowers.
"I was working with one family to help them create a household budget and learned that they had two payday loans out," said Shirley Paulison, community engagement liaison for CAP. "They were paying more than $300 every payday -- over $600 a month -- to try and cover those loan payments."
According to the Center for Responsible Lending, a consumer advocacy group based in North Carolina, the payday loan industry depends heavily on repeat business -- particularly so on "flipped" loans that roll over the principal amount for additional fees at high interest rates. On average, the center reported, borrowers who use this approach will be forced to pay back almost $800 on an original principal amount of a little more than $300.
source:http://www.bonnercountydailybee.com/articles/2008/01/25/news/news01.txt
