A loan to buy a house or pay for college is one thing, but there are other loans borrowers should never, ever take, warns financial author and radio host Dave Ramsey.

On The Early Show Tuesday, Ramsey said many of today’s consumers are falling victim to “predatory loans” — essentially, online cash loans that are too good to be true and wind up hurting the person who takes them.

Ramsey highlighted three of the most common loans to avoid, explained why they should be avoided, and offered alternatives.

Predatory instant payday loans, he says, are nothing but trouble. They wind up hurting, not helping, the person who takes them. While some clearly seem like bad ideas at the start, others seem harmless.

Ramsey says to turn thumbs-down when you come across these offers:

BUY NOW, PAY LATER!
90 DAYS, SAME AS CASH!
NO PAYMENTS, NO INTEREST FOR 3 MONTHS!
NO FINANCE CHARGES UNTIL JANUARY!

Do any of those claims sound familiar? Stores advertise these incentives on everything from lawn mowers to computers. And we are talking big name, big box stores here, “reliable” stores. Chances are, you know somebody who has taken a store up on one of these no fax payday advance offers. And why not? Why not buy something today and then pay it off three months (or six months or a year; terms/offers vary) down the road? Why not hold on to your money if you can?

Here’s why: Nine out of 10 people don’t pay these cash advances back on time.

This is a huge problem because you really are simply receiving a loan from the store. The minute your initial period is up, you start paying a whopping interest rate of 24 percent to 38 percent on the remaining loan balance.

Even worse, that interest does not begin accruing on day 91, it begins accruing from the original date of purchase. Result: That riding lawn mower winds up being much more expensive than you thought. Ramsey says, “If you are playing with snakes, you will be bitten.”

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This was supposed to be the year that consumer advocates were going to persuade the Legislature to clean up the Utah payday loan industry.

Instead, only one of several reform measures was approved. SB16, endorsed by the faxless payday advance industry and state regulators, establishes financial penalties for payday loan operators that break state law.

Payday loan operator Cort Walker, spokesman for the Utah Consumer Lending Association, said Friday his group is happy with the passage of the Senate bill.

“The passage of SB16 further enhances the ability of Utah to regulate payday lenders while allowing the industry to serve consumers in a responsible manner - it is a win-win for the customer and the industry,” he said.

Critics of the payday cash loan industry, though, said the bill, sponsored by Sen. Ed Mayne, D-West Valley City, didn’t go far enough to protect consumers from the dangers of taking out loans with interest rates of 400 percent or more.

Other measures favored by advocacy groups such as the Coalition of Religious Communities and AARP failed.

House Bill 329, sponsored by Rep. LaWanna Shurtliff, D-Ogden, among other things would have capped the maximum cash advance amount at $500. Shurtliff did not immediately return calls seeking comment about her proposal.

Also failing was HB159, sponsored by Rep. Lorie Fowlke, R-Orem, which would have called for a legislative study of the payday loan industry.

Laura Polacheck, AARP Utah’s associate director, said the legislative session was disappointing from the standpoint of online payday loan industry reform but hopes that she and others have laid the groundwork for real change next session.

The following is a paraphrased editorial from The Daily Press in Virginia:

The General Assembly had a chance to do the right thing. It had a chance to restrain a predator that is ruining some vulnerable Virginians.

It declined.

A bill that would have tinkered with the payday advance lending industry - and that’s all it would have done, since it was crafted to please the industry - was yanked by its sponsor by the last minute. He took the evasive maneuver after Gov. Tim Kaine indicated he had an inkling to fix the bill’s glaring problems and amend it to do some real good. Kaine might have succeeded, since there seemed to be support on the floors of the House and Senate to take meaningful action.

Rather than let that happen, the bill vanished into the thin air of legislative legerdemain.

And with it the opportunity to address a quick payday loan problem that is a blight on the state.

The General Assembly will have another chance next year. But in the meantime, a lot of people will be hurt. They will continue to get small loans for interest rates that average 386 percent APR - and can reach 782 percent if the loan is for one week.

That’s way beyond the 36 percent limit the state sets for other cash advance loans, and the same ceiling Congress imposed on payday loans to the military. Even if that’s too low to make these small, short-term loans profitable, there was room for a compromise - or a conclusion, like many states have reached, that there’s no need to compromise usury laws to make room for this business.

Contrary to industry claims, for most borrowers a payday loan isn’t a once-in-a-blue-moon fix for a fiscal emergency. If the next year is anything like the last, half a million Virginians will get pay day loans, and the average borrower will take out eight.

Too often, those loans take them farther down the path of monetary misery that led them to a payday lender’s door in the first place. They get one loan to pay off another. They can end up paying much more in interest than they borrowed. As interest mounts, they find it harder to pay off, and dig themselves into a financial hole with a shovel supplied by payday lenders.

Some can’t climb out, and their debt overtakes them.

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Texas has laws prohibiting payday advance loan lenders from charging high interest rates. It just doesn’t look that way.

Companies that provide short-term loans at high interest rates use out-of-state lending partners to get around Texas’ usury laws.

Now, some state legislators are gearing up to close those loopholes and strengthen regulation of the Texas payday loan industry, even as the industry launches a major public relations campaign aimed at polishing its image.

The payday lending industry says it provides an important service to consumers who need occasional help paying their bills – potentially avoiding more costly late fees or reconnection charges on their utilities.

Critics say the practice amounts to predatory lending, with service fees and shockingly high annual percentage rates that keep the working poor trapped in debt.

“Predatory lending is a plague,” says Sen. Eliot Shapleigh, D-El Paso, who’s written bills for the current legislative session that would put bad credit cash loan lenders under tighter oversight. “In America today, in the top 10 cities where predatory lending is worst, seven of them are Texas cities. All are minority communities, where predators have closed the door to mainstream banking and prey on soldiers, young women and struggling families.”

Third-party lenders
No fax payday loan lenders in Texas used to partner with banks based in states without usury laws, and those banks would actually provide the payday loans. In 2005, federal banking regulators discouraged banks from providing such loans.

“We’re not dealing so much with banks anymore,” says Leslie Pettijohn, Texas consumer credit commissioner. “The federal regulators have changed their criteria and have instituted guidelines.”

Instead, payday lenders are using anonymous third-party lenders under state laws regarding credit services organizations, or CSOs, the companies that offer to help repair your credit.

“The CSO model has been their attempt to escape regulation of any kind. It’s really, really unregulated at this point,” says Don Baylor, senior policy analyst at the Center for Public Policy Priorities in Austin. “High-cost payday loans are considered among the most destructive financial products in the marketplace.”

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Soft music plays in the background of a new TV ad campaign as it urges viewers to only use cash loans for emergencies. One scene shows a broken-down car. Another depicts a young boy in a doctor’s office, his arm in a sling.

“Please borrow only what you feel comfortable paying back when it’s due,” says Darrin Andersen, president of the Community Financial Services Association. A new emblem will tell borrowers which lenders meet his trade group’s requirements, Andersen says in the ad.

The $10 million campaign, announced last month along with some industry policy changes, came as states from Virginia to New Mexico consider legislation to limit quick payday advance lending practices. But it’s not stopping consumer watchdogs and people already in debt from questioning the motives of an industry whose loans’ annual interest rates can exceed 400 percent.

“Payday lenders make it easy for consumers to get trapped in predatory debt,” said Teresa Arnold, legislative director for AARP in South Carolina.

Rena McFadden and her husband are two people who’ve become trapped. Her husband has been dealing with bad credit payday loan lenders threatening court action unless the McFaddens quickly repay the $2,400 they owe.

“The time to repay is too short. He’s been trying to talk to them, but they won’t talk,” said McFadden, a 39-year-old who works in a dry cleaning shop. “They want the money by the next pay day. How are you supposed to pay your bills?”

There are more than 22,000 check cash advance locations in the United States that garner $6 billion annually in revenues, according to Steven Schlein, a spokesman for the financial services association, which represents about two-thirds of payday lending companies.

The payday loan industry’s biggest change would give customers more time to pay back a loan with no financial penalty. This “extended payment plan” would be available at least once a year and provide borrowers between two and four extra months to pay off loans. It was paired with the ad campaign and a ban on ads that promote payday cash advances for “frivolous purposes” like vacations.

But lawmakers are still pushing changes. In South Carolina, home to Advance America, the nation’s largest payday lender, lawmakers are considering a measure that would cap at 36 percent the annual interest fee on the loans and limit the number of payday loans a consumer could have with a single payday loan company.

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The Iowa Supreme Court rejected a challenge to a state law that allows payday loans with annual interest rates more than 300 percent.

In Monday’s ruling, a unanimous Supreme Court said the issue should be taken to the Legislature, not the court system. The court, ruling in a Polk County case, said state law governing cash advances meets constitutional muster, even though interest rates allowed under the law are high.

The ruling comes as the Legislature debates another controversial lending practice, seeking to put new restrictions on car title loans.

A bill to hold Arkansas payday loan lenders to the state usury limit stalled in the Senate Insurance and Commerce Committee when only one of the committee’s eight members voted for it.

The vote followed an hour’s debate on House Bill 1036 by Rep. David Johnson, D-Little Rock.

Johnson said payday lenders charge rates on cash advance loans ranging as high as 600 percent on an annual basis. The state constitution sets the usury rate at 17 percent.

The bill would fine payday lenders $300 each time they charge interest rates that would exceed 17 percent a year if applied throughout the year. For instance, if a loan lasted one month but charged 10 percent in that month, that would exceed the limit under the bill.

Sen. Jim Argue, D-Little Rock, voted for the measure. Two other members were not present when the vote was taken.

Sen. Percy Malone, D-Arkadelphia, was one of the five members present who did not vote. He said in an interview afterward that a state Supreme Court case was pending to decide whether the usury provision of the Arkansas Constitution applies to short-term, no faxing payday loans of between six and 30 days.

Malone also said the state has regulatory powers that apply to payday lending.

“We are going to make some effort to increase the regulation of payday, hopefully in this session,” he said.

Malone said there were few sources of loans for high-risk borrows in short-term financial difficulty. If a customer needed a quick cash loan of $100 for one week, for instance, “nobody’s going to give it for interest that amounts to 75 cents,” Malone said.

The argument that payday loans are an avenue for people without credit ignores the facts, Mayor Patrick Henry Hays of North Little Rock told the committee.

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The following, paraphrased editorial is courtesy of The State:

“Lord, who shall abide in thy tabernacle? who shall dwell in thy holy hill? … He that putteth not out his money to usury, nor taketh reward against the innocent. “ - Psalm 15:1, 5

Uisury is banned by many religions, but it’s alive and well in South Carolina.

It’s called payday cash advance lending.

Shamefully, South Carolina law allows these lenders to charge fees that amount to an annual interest rate of 391 percent. Many of the borrowers who end up paying the outlandish interest are the poor, the elderly and minorities.

South Carolina payday loan lenders continually say they don’t target such groups, but studies suggest otherwise. The lenders say they target middle-income Americans, folks who make $25,000 to $50,000 a year. But it doesn’t really matter who their targets are. No one, whether they’re black or white or Hispanic, young or old, rich or poor, deserves to be subjected to a nearly 400 percent interest rate.

Payday lenders say they provide a needed service. They say their customers lack access to traditional forms of credit, although credit unions offer small loans at much cheaper rates. It’s even cheaper to use a credit card or go to a finance company.

Guarateed payday loan lenders seem to suggest it’s OK to charge an obscene rate because they cater to borrowers who are desperate and may have no where else to turn.

For centuries, the term “usury” described the lending of money for any amount of interest, no matter how small. But it has come to refer to the practice of charging excessive rates. The Bible doesn’t support usury; it’s considered a sin. Exodus and Leviticus prohibit instant cash loans with interest. Deuteronomy prohibits charging any interest. Consider these scriptures:

Deuteronomy 23:19, 20: “Thou shalt not lend upon usury to thy brother; usury of money, usury of victuals, usury of any thing that is lent upon usury: Unto a stranger thou mayest lend upon usury; but unto thy brother thou shalt not lend upon usury: that the Lord thy God may bless thee in all that thou settest thine hand to in the land whither thou goest to possess it.”

Leviticus 25:35-37: “And if thy brother be waxen poor, and fallen in decay with thee; then thou shalt relieve him: yea, though he be a stranger, or a sojourner; that he may live with thee. Take thou no usury of him, or increase: but fear thy God; that thy brother may live with thee. Thou shalt not give him thy money upon usury, nor lend him thy victuals for increase.”

Exodus 22:25: “If thou lend money to any of my people that is poor by thee, thou shalt not be to him as an usurer, neither shalt thou lay upon him usury.”

God calls us to use the resources he has given us to help people in need. But I don’t believe the Bible prohibits charging reasonable interest. In two parables, Jesus told stories about men who went on journeys, each of whom left a certain amount of his wealth in the care of multiple servants. In both cases, Jesus refers to the men’s expectation that their servants would invest their money in a bank or with exchangers to yield a profit.

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Local MP Colin Carrie is working with his government to push provincial regulation of the no fax payday loans industry.

Dr. Carrie, MP for Oshawa and parliamentary secretary to the minister of industry, appeared at the Senate Committee on Banking, Trade and Commerce this week to explain bill C-26, which received third reading earlier this month.

The bill amends the Criminal Code to exempt payday cash loans from criminal sanctions, allowing for provincial regulation of the industry.

“As more Canadians make use of payday lending, Canada’s new government is taking steps to ensure that the industry be properly regulated,” Dr. Carrie said. “We are getting things done for families and taxpayers by giving provinces and territories the tools they need to protect consumers and deal with questionable business practices.”

A cash advance payday loan is a short-term loan for a relatively small sum of money. Loans are often provided in cash, although a number of lenders provide money on a debit card. In order to qualify for a payday loan, the borrower must have a steady source of income, usually from employment but also from pensions or other sources and a bank account.

Payday lending is a rapidly growing industry in Canada. While it was non-existent before 1994, the industry has grown to more than 1,350 outlets nationwide, accounting for an estimated $1.7 billion in lending each year.

Currently, there are no federal or provincial regulations to set limits on interest rates charged by these no fax payday advance lenders, prompting concern from consumer advocacy groups and politicians.

A national trade association’s new guidelines for faxless payday advance loans offer little that’s new to North Dakota lenders, who already operate under state regulations and self-imposed restraints.

The Community Financial Services Association of America last week announced changes to its best practices for members, along with a $10 million consumer education campaign. The changes came in response to concerns raised by consumer groups about the industry.

There are 81 no fax payday loan lenders licensed and regulated by the North Dakota Department of Financial Insitutions. Nationally, there are about 22,000 payday lenders.

“The business seems to be doing well,” said Timothy Karsky, commissioner of the state Department of Financial Institutions. “They say there’s more payday loan services now than there are actual McDonald’s franchises. It’s a very big industry. It’s over $40 billion. So obviously, there’s a demand for these types of loans.”

Consumer groups have raised concerns about predatory practices and the high cost when translating fees into interest rates. Although states regulate industries within their borders, cash advance loan offers proliferate on the Internet and through e-mail spam.

“We have very few complaints from individuals,” Karsky said of the industry in North Dakota. Nor do the department’s on-site inspections turn up more than minor infractions at the establishments.

“Overall, they are doing a good job, and I think we are doing a good job of regulating the industry,” he said.

A state law passed in 2001 includes many of the provisions of CFSA’s best practices, including restrictions on certain advertising, disclaimers provided to customers and provisions enabling fast cash advance customers to rescind a transaction at no cost before the end of the next business day.

CFSA plans to require members after July to offer an extended payment plan at no additional fee if a customer has difficulty paying when the loan comes due.

Jay Couture, president of the North Dakota Pawnbrokers Association, said North Dakota’s requirement that no faxing payday loans be repaid within 60 days will limit the extension period. Payday loans typically can be renewed for an additional fee, and North Dakota allows only one renewal. State law also limits loans to $500 and fees to 20 percent of the loan amount.

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