Bankruptcy

Broke USA Tells Payday Loan Stories from the Ground Up

By Nathalie Martin

Those interested in the dark crevices of consumer lending might want to go to the library or book store and pick up Gary Rivlin?s new book Broke, USA, or at least read this article about it. I just had a spirited discussion with some lenders? attorneys about payday lending and they insisted that I not worry so much about 500% APRs but instead focus on the high cost of making these loans. In other words, as the argument goes, profits are not that high so the rates are necessary.

Rivlin?s book highlights one thing you might not know, namely that lenders work very hard to get people into these loans and keep them there. Rivlin notes that ?every chain I came across offered $20 off your next payday loan if you brought a friend, family member, or co-worker?Then there?s the upsell. A customer comes in and asks for $200 but could qualify for $500. The store managers were instructed to point out no less than three times that they could qualify for $500.?

In my own recent curbside interviews of payday lending customers, I have seen a customer loyalty card, where as long as a customer does not pay down any of the principal on the loan, they can pay the fee four times and get the fifth fee free. What a deal! Plus, if you do pay down any principal, some lenders call you on the way home to offer more money again. This hard-sell practice is highly relevant to one of the most oft-used industry arguments against quoting rates in annual terms, namely that these are short-term loans. The lenders try to make the loans long term ones, even if the customer wants out.

One last side-note in passing, consumers in Nevada need to be extra careful these days. They are a barraged not just with payday lenders but also with those pretending to be collecting for payday lenders. Check out that story here.

Full post as published by Credit Slips on July 27, 2010 (boomark / email).