Attractive and easy, payday loans often snowball

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Loans are quick and easy. Customers are usually required to leave a backdated personal check that the lender can cash on the next payday, two or four weeks later. They have to present a pay stub or proof of regular income, like Social Security, but there is no credit check, resulting in some defaults but, more often than not, a continuous extension of the loan, with repeated charges.

In many states, including New Mexico, lenders make no effort to see if customers have borrowed elsewhere, so Mr. Milford was able to take out so many loans at once. If they repay on time, borrowers pay fees ranging from $ 15 per $ 100 borrowed in some states to, in New Mexico, often $ 20 or more per $ 100, resulting in an annualized interest rate. , for a two week loan, 520% ​​or Suite.

In September, Congress, responding to complaints that military personnel were the targets of “predatory lenders,” imposed a 36% annual interest limit on loans to military families. The law will come into effect next October and is expected to stifle payday loans to this group because, according to lenders, the fees they could charge for a two-week loan would be negligible, just over 10 cents a day, a said Don Gayhardt, president of the Dollar Financial Corporation, which owns a national chain of lenders called Money Marts.

The new law will have little impact on wider practice, as military families account for only a tiny fraction of payday loans, which lenders argue as meeting a need of low-income workers.

Credit…Rick Scibelli Jr. for The New York Times

Mr Gayhardt said the industry flourished because more people were working in low-paying service jobs, and in a pinch, they found payday loans cheaper and more convenient than bad checks. , paying late fees on credit cards or cutting their utilities.

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