Thursday, April 19, 2007

Missouri Payday Loan Companies: Friend or Foe?

By Paul Rizzo
Payday Loan Writer

You’ve seen them dotting business loops and adorning strip malls.

If times were desperate enough, you may have even been tempted to walk in and patronize their services.

No fax payday loan companies, also known as cash advance or check advance loan companies, are cropping up everywhere. In Fulton, seven such companies - three already in 2007 - have been established in the last three years.

Missouri Payday Loans Whether the institutions provide an essential service, or a hazardous financial trap is a matter of perspective.

Overall, same day payday loans are secured by a personal check written for the amount of the loan plus a fee. According to the Federal Trade Commission, the customer is generally given 7 to 14 days to repay the money at an extremely high rate of interest - sometimes 500 percent APR or more.

With the check post-dated for the borrower’s next payday, the customer is given the option of bringing in cash in exchange for the check, or allowing the company to debit his or her account. There is also the option of “rolling-over” the check, extending the loan and paying an additional fee.

Typically associated with low-income neighborhoods, the industry is now beginning to spread to higher-income areas.

Dennis Clarke manages 10 different Missouri locations for Payroll Advance Inc., including the Fulton store on West 5th Street. He believes the industry of payday advance loans has been cast in an unfair light.

“Some of the press makes it sound like if all the payday loan stores were shut down that somehow that would help the people that would need to borrow money,” he said. Clarke also said it’s necessary to charge such a high interest rate because short-term loan customers are a high risk for defaulting on the loan. “We have clients who come in and borrow money to pay the electric bill, and they tell us if it wasn’t for us, it would be turned off.”

For some financial experts, however, this conclusion is short-sighted. Brenda Popp, an assistant business professor at William Woods and a Certified Financial Planner, addresses these types of pitfalls in her personal finance class.

“The thing I tell my students is, whenever you or someone you know starts getting into this cycle of going to these payday loan companies, it’s a red flag,” she said. “It’s a financial crisis where they are spending lots more than they are bringing in.”

This predatory characterization of the cash loan online industry has motivated the Community Financial Services Association to ramp up its national campaign. The CFSA is a national advocate for the industry, and according to its website, dedicated to promoting “legislation and regulation that provides customers with substantive consumer protections while preserving their access to short-term credit options.”

“We represent 60 percent of the [cash advance] lenders,” said CFSA spokesperson Steven Schlein. “We have state affairs people and lobbyists to federal legislators and a public education campaign on television.”

One of those commercials features CFSA president Darrin Anderson.

“We want you always to use payday advances responsibly,” he says to the accompanying piano music. “Payday advances are never designed to be a long-term financial solution.”

Unfortunately for many customers, a short-term solution can turn into a chronic problem.

“It’s like a boulder rolling down a hill - it just keeps picking up speed,” said Popp. Popp added that it’s not generally a major financial event that triggers a dependence on payday loans. “It’s not like they’ve had a catastrophic illness. It’s usually that their washer or dryer has broken down, or something like that. Now they’re in a financial crisis.”

Regardless of how the CFSA portrays fast cash loans, it’s practically unanimous among economic experts that they should be used as a last resort.

“In the short term, there may not be a lot of options for the people who use these kind of loans,” said Westminster associate professor of economics Gyan Pradhan. “In the long run, I think people really need to seek a better understanding of finance at the basic level and how much money (the loans) are costing them.”

SOURCE: The Fulton Sun

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