Negative perceptions about faxless payday loans really aggravate Megan Tracy, a 42-year-old Concord woman who lives on $700 a month in Social Security and disability benefits.
The way she sees it, a $240 payday loan once a month gives her the boost she needs to make ends meet, allows her to rely less on church meals and gives her a chance to take her kids to the movies once in a while. It gives her a little extra cash while she’s waiting for her checks to arrive and once they do, she pays back the instant cash loans to avoid slipping further into debt.
“It works,” said Tracy, who testified last week against a proposed law to ban payday lending in New Hampshire. “My quality of life has gone up because of those loans.”
The problem, consumer advocates say, is that people like Tracy often fall into a vicious debt trap. Once they have taken out the first high-interest payday loan, they have to keep taking out more to continue making ends meet, and eventually they can’t repay the loans as the cost adds up. Payday advance loan lenders have launched a multimillion dollar campaign to try to change the perception of their industry.
But consumer advocates and some state lawmakers say payday loans should be curbed because they are a form of predatory lending whose victims can least afford it.
Opposing perspectives: Payday lenders offer two-week loans for up to $500, but they do not require a credit check. A customer shows a pay stub and writes a check for the amount borrowed (plus a fee) that will be cashed when the person’s next paycheck is issued. The small loans are controversial because of the interest rates.
For every $100 borrowed, customers are charged a $20 fee - which translates to an annual interest rate of 520 percent.
New Hampshire payday loan lenders say it is unfair to consider their fees interest rates and calculate them for a year since the loans are only two weeks in duration. A customer would have to take out a loan every two weeks for an entire year to actually pay that much interest in fees, and few, if any, customers do that, said Jamie Fulmer, a spokesman for payday lender Advance America. But consumer advocates say the charges are outrageous and should not be allowed.
New Hampshire lawmakers are considering a bill this session that would cap annual interest rates on payday and title loans at 36 percent. Title loans, like payday advances, are a two-week cash loan but consumers must hand over the title of their vehicle instead of a check.
Consumer advocates say a 36 percent cap is reasonable for those kinds of loans and anything higher is predatory. Easy payday loan and title lenders say a 36 percent cap will drive them out of business, leaving people like Tracy with nowhere to go for emergency cash.
The debate comes down to opposing perspectives of who is using the product and why.
A financial tool: Critics who claim the cash advance loan lending industry preys on low-income people who aren’t financially savvy do not paint an accurate picture, Fulmer said. His company is the largest payday lender in the country, with more than 2,900 stores in 36 states, including 20 stores in New Hampshire.
Contrary to what some believe, he said, most Advance America customers are not poor or uneducated. The average household income of Advance America customers is roughly $41,000 a year, all of its customers are employed, 90 percent have at least a high school education, and a little less than half own a home, he said.
“They’re your teachers, your bus drivers, your policemen,” he said. “The true middle-income folks.”
And they’re using payday advances the way they’re supposed to - as a one-time fix when an unexpected expense or circumstance leaves them with a gap between paychecks, he said. Ninety-seven percent of customers ultimately pay back their loans; 95 percent pay them back “on or about” when they’re due, he said.
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