10 Dirty Secrets of Payday Lending

Most people think that an annual percentage rate of 260 or 280 percent is the dirtiest secret behind payday lending. However, the interest rate is merely one ingredient of a cauldron filled with highly toxic, financially destructive brew.

1. Payday lenders target people collecting social security!

A payday lending memo from Check ‘n Go directed store managers to loan to “anyone getting social security who had at least one dime to their name.” (1) Pew’s Payday Lending in America study revealed that 12 percent of all disabled Americans had taken a payday loan.

2. Advance America’s profits go to Mexico!

Advance America was purchased by Grupo Elekctra, which is owned by Mexican billionaire Ricardo Salinas Pliego, in April of 2012. (2) When you consider that $1 spent at a local independent business has up to five times the local economic impact of a dollar spent at a chain store (3), how much do you think a dollar is worth when it’s spent at a foreign-owned chain store like Advance America?

3. Payday loan “pinball” is when borrowers borrow from one payday lender to repay another!

Rhode Island law limits the amount of checks a payday lender can hold to $500 from each borrower, so the maximum payday loan in Rhode Island is $450 plus a $45 fee for a total of $495.(4) The problem is, we don’t have a loan tracking system. This allows borrowers to take additional loans from other payday lenders. Borrowers end up using one payday loan to pay another in a borrowing and interest-paying frenzy that looks much like a human pinball game.(5) Make no mistake, this is not a game. More and more of the individual’s paycheck is diverted away from necessities like rent, food and clothing, to pay interest.

4. Christmas and Back to School are Payday’s busiest times!

It shouldn’t surprise anyone that people who use payday loans take more of them during December and September. (6)

5. Absence of payday lenders improves family finances!

North Carolina outlawed payday lending in 2006. A study done after closure of payday lending stores in their state found that more than half of families that had used payday loans saw their finances improve after these loans were made illegal. (7)

6. Payday law’s protections are easily circumvented by payday lenders!

Rhode Island law allows for one rollover of a loan. (4) Sadly, this regulation is easily avoided by closing one loan and writing a new one. (8)

7. RI law allows payday lenders to hold 3 borrower checks!

Why is there a provision in our state’s law allowing payday lenders to hold 3 borrower checks? (4) According to Phil Locke, former owner of a chain of payday lending stores in Michigan, “it’s easier to cash three $100 checks than it is to cash one $300 check.”

8. Payday lending creates high anxiety, high pressure, low paying jobs!

Employees report sleep loss and other anxiety related health issues, resulting in a high turnover rate at payday lenders. (9) The jobs are also low paying, just $9 to $15 per hour. (10)

9. Payday lenders use aggressive collection techniques!

If you’re late paying your loan, expect to receive 3 calls per day from the payday lender. Your friends and family should expect calls too, as well as your employer. (8) Some payday lenders will even visit you at home to collect the debt. If you’re not home they’ll leave a brightly colored door hanger saying “You owe us $___” for all your neighbors to see. (11)

10. Payday lending is the “crack cocaine” of financial instruments!

Locke said that some payday lenders offer the first loan for free, “it’s like crack, and then he needs more and more.“ Mellissa Barnes said “It’s worse than crack. You keep going back.” (8) And the Canadian Personal Finance Blog said, “payday loans are the equivalent of crack to your finances.” (12)

(1) Rivlin, G. Broke, USA 2010, New York, Harper Collins p. 192
(2) http://www.forbes.com/sites/erincarlyle/2012/04/23/mexican-billionaire-buys-advance-america-largest-payday-lender-in-u-s/
(3) http://www.amiba.net/resources/studies-recommended-reading/local-premium
(4) http://webserver.rilin.state.ri.us/Statutes/TITLE19/19-14.4/19-14.4-5.1.HTM
(5) Rivlin, G. Broke, USA 2010, New York, Harper Collins p. 194
(6) Rivlin, G. Broke, USA 2010, New York, Harper Collins p. 265
(7) http://www.ccc.unc.edu/documents/NC_After_Payday.pdf
(8) http://www.ccc.unc.edu/documents/CC_2MuchMonth.PaydayNC.pdf
(9) Rivlin, G. Broke, USA 2010, New York, Harper Collins p. 196
(10) http://www.indeed.com/q-Payday-Loan-jobs.html
(11) Rivlin, G. Broke, USA 2010, New York, Harper Collins p. 193
(12) http://www.canajunfinances.com/2012/09/24/pay-day-loans-the-crack-cocaine-of-personal-finances/