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Paying the High Costs of Payday Loans

Hazel Trice Edney
NNPA Washington Correspondent

WASHINGTON (NNPA) – On the surface, Sandra Harris appears to have it all together.

She’s the financial assistant to the director of finance at the University of North Carolina at Wilmington, her alma mater. Last year, she was named state employee of the year. In addition to her university job, she is an on-air personality for WMNX 97.3 FM.

But while Sandra Harris seems to have it all together, she is in deep financial trouble, often turning to high-interest payroll loans to make it from week to week.

“There are some times that I’ve been at the radio station and, this is no lie. I’ve been working on air and I am blubbering off the air. And when it’s time for me to talk, I just do my…‘This is your girl, Sandra. Right now outside, it’s da, da, da, da’…Then turn the mic off and I go back to crying. Nobody knows I’m crying.”

Harris is crying and crying out for help. And she is not alone. Thousands of people are also caught in a web of payday loans, according to a study conducted last year by the Durham, N.C.-based Center for Responsible Lending, a non-profit think tank.

“Borrowers who find themselves involved with the industry very often find themselves caught in what we call the debt trap of payday lending,” says Keith Ernest, a researcher at the center, who co-authored the study. “When we looked, borrowers, on average, received eight to 13 payday loans per year. We’ve talked to borrowers who have paid thousands of dollars in fees. We conservatively estimate that predatory payday lending fees, those extracted from borrowers caught in a debt trap of repeated transactions, cost U. S. families $3.4 billion annually.”

The payday loan industry defends its practices, saying the loans are promoted as being for emergencies and urgent cash needs.

But several consumer and civil rights organizations, including the NAACP, are taking on the industry, saying it takes unfair advantage of the most vulnerable segments of society.

“Research has shown – and a drive through any low-income neighborhood clearly indicates – people of color are a target market for legalized extortion,” says NAACP Chairman Julian Bond. “This so-called business cannot stand. It must be banned. The NAACP is dedicated to eliminating payday, because wealth building and saving for the future are vital to the economic success of communities of color.”

This is how the loan generally works: There is a 15 percent fee on a loan amount. Thus, a borrower writes a check for $300 and receives $255 in cash. And the other $45 represents the fee. Therefore, they pay $45 for $255 in credit, usually for two weeks.

The borrowing – at annual percentage rates of 400 percent – does not require a credit check. Usually, all a person needs is a checking account, a post-dated check and a check stub to show they are employed.

“What the borrower does not anticipate is not being able to pay it back,” says Michael A. Stegman, chairman of the Department of Public Policy and director of the Center for Community Capitalism in the Kenan Institute of Private Enterprise at the University of North Carolina. The institute studies problems between businesses and communities.

Stegman also conducted a study of payday lending practices last year.

“Whereas virtually no payday loan outlets existed 10 years ago, industry analysts estimate there are now up to 14,000 of them, with total loan originations of between $8 billon and $14 billion in 2000 alone,” Stegman’s study states. “At an average of $300 per loan, this translates to between 26 million and 47 million individual payday loan originations in 2000.

Experts anticipate that a steady growth in loan demands to about $20 billion a year by 2004 will fuel expansion at a rate of about 100 new payday loan outlets a month across the country.”

There are plenty already. According to Stegman, Missouri has 800 such outlets; Florida and Chicago have 500 each; Washington state has more than 400; and with approximately 2,000 outlets, California probably has more payday loan offices than McDonalds or Burger King fast food outlets.

Rep. Bobby Rush (D-Ill.) introduced a bill last June to protect consumers from payday lenders.

H. R. 2407 calls for Congress to amend the Consumer Credit Protection Act and other banking laws to protect consumers against exorbitant fees, perpetual debt and other adverse practices by payday lenders. The bill has languished in the Subcommittee on Financial Institutions and Consumer Credit under the House Committee on Financial Services.

Twenty states have laws or are considering laws regulating payday loan agencies.

That’s not nearly enough, says Keith Corbett, a vice president of the Center for Responsible lending. He tracks legislation and assists with lobbying efforts against payday agencies.

“I fight them across the country,” Corbett says. “What they do is they target a lot of the African-American legislators and they’ve got some pretty smart Black folks working for them.”

Harris recalls that she first heard of the easy payday loan from a radio commercial shortly after her husband, Julian, lost his job as an executive chef three years ago.

She started by borrowing $300 to help make ends meet. She borrowed more and more from various payday lending agencies, desperate to cover the costs of each loan and to pay each one back. In fees alone, Harris estimates she has paid about $8,000 on loans of $4,000 to $5,000 over the past three years.

Meanwhile, the couple was forced to leave their spacious two-bedroom apartment of eight years last year and were exploring homeless shelters when they found a low-rent apartment through a friend.

Her husband has a new job, but the pressure is still on.

“It’s like a ton of bricks. I’ve really felt like I was choking or can’t breathe,” she says. “I’ve felt like there was no help.”

Actually, Harris is the exception to the typical payday borrower. They are usually single, Black women between 18 and 59, frequently with children, according to information published on PaydayandPaycheckloans.com, a Website for people interested in starting their own payday loan business.

Men are also easy targets.

“I was robbing Peter to pay Paul to pay Mary to pay Jane,” says Sidney Hughes, a security officer in College Park, Ga. and custodial father of two middle school children. He ended up borrowing $3,000 from payday lenders, starting with a $400 loan between paychecks. He has paid back more than $10,000 in fees over nearly three years.

Finally back on his feet after help from a lawyer, Hughes says, “They won’t leave me alone.”

He still gets frequent e-mails offering cash deposits into his bank account.

“I get tempted all the time,” he says. “But, no. No.”
Harris, who has also obtained a lawyer, agrees.

“At the time, it seems like the way out,” she says. “But this is not a quick fix…This is no answer.”

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