April 16, 2013
They are almost as easy to find as grocery stores and say they’re just waiting to help people who’ve overextended themselves.
In 33 different states, there are more than 20,000 stores, and that doesn’t even include what can be accessed online or in banks like Wells Fargo and Fifth Third.
They go by the name Payday Lenders.
The typical storefront operation that will lend money requires a post-dated check for the amount borrowed plus what is generally 15 percent interest that will be deposited 14 days after the loan is taken. And, for those who feel their only option is to use such a service, if the money still isn’t there to make that post-dated check good, it’s another advance and more interest.
According to author John Sandman, who’s written extensively about the pervasiveness of the payday-lender industry, an initial loan can be flipped as many as eight times, prompting interest payments in the triple digits.
The advertised claim — and this is evident every time you see Montel Williams on TV as a spokesman for the online service Money Mutual — is that the loan is for “money emergencies.”
What’s interesting about Money Mutual is the organization isn’t really the money lender. It’s a service that locates a lender with which it has an agreement to make the actual loan, a broker of sorts.
And my, what a big business this industry has become. According to former Ohio Attorney General Richard Cordray, who now heads a consumer protection bureau and keeps close tabs on payday-lending practices, more than $7 billion annually is spent on interest and late fees.
About 25 percent of those who feel compelled to use the service of a payday lender are receiving the money to repay the loans via Social Security checks, according to Sandman.
Sandman feels lenders typically love this type of business because it establishes a regular cycle from which to collect on interest, and there is also no question the money will be there in the form of a benefit check when the loan’s principle and interest come due. Lenders also favor those who have regular unemployment or disability checks upon which they can count for repayment.
Whenever I hear of such operations, I can’t help but think of Shylock in Shakespeare’s "Merchant of Venice," and I feel bad for those who feel their only option is to use such a service, a service that seems to me to be as much predator as Samaritan.
Now, it would be naïve to say that the simple solution for those who feel compelled to use payday lenders is to stop spending money frivolously. After all, I know there are many who struggle to survive on minimum-wage paychecks.
Before looking in the direction of payday lenders, perhaps the smart move would be taking the time to examine spending habits and establishing something the Federal Government has little resolve in doing: a budget. And beyond that, look online for nonprofit credit counseling agencies. This way, those trapped in an endless cycle of payday-lending loans with their accrued interest will know all their options.
In this economy, as Jimmy Buffett sang in "Fins," there are “fins to the left, fins to the right” when it comes to those who will presents themselves more as safety nets than sharks.