|
Page 1 of 2
Photo by Paula Illingsworth
Lavone Holbert says she was the ideal customer for payday lenders. She always paid what she owed and then took out another loan.
By Kristen Poland
Staff Writer
For years, Lavone Holbert drowned in debt. Struggling to raise her children by herself and pay for her own education, she lost control of her finances, plummeting in a downward spiral.
She was $35,000 in debt and even though she worked full-time as a nurse, she watched her paychecks disappear before they ever settled into her bank account. She racked up credit card debt, but a significant portion of what Holbert owed was to payday lenders.
“I would get paid, then I’d pay my bills but I’d be broke until next payday so I’d go to the payday lender to get money to have gas, food and other things my kids needed. But then the next time I’d get paid, I’d owe money to the payday lenders on top of my rent and bills, and then I’d be broke again so I’d need to take out another loan,” Holbert said.
“I don’t know how I was paying these people. I started out getting $50 loans and then I increased to $300. Then I was getting three at a time. I’d write a check at one to pay the other one. I’d take money out of my checking account to pay the next one–like a circle. I did that for a long time, until about three years ago. I’d tell people I was robbing Peter to pay Paul.”
Holbert isn’t alone. Across the state, lawmakers and consumer advocates are pursuing statewide legislation that would regulate the industry they say takes advantage of consumers. A handful of local governments have either passed or considered legislation, including the city of Rock Hill, which passed zoning ordinances in an effort to curb the rapid increase of payday lenders within the city.
Myrtle Beach couple John and Rebecca Morgan filed a lawsuit against the industry on the grounds that loans were made to them without regard for their ability to pay them back. The suit, filed in September, has since grown into a class-action lawsuit.
A thriving industry
In South Carolina, the number of payday lenders has skyrocketed from 274 in 1998 to more than 1,200 today. According to statistics published by John Ruoff of S.C. Fair Share, from July 1, 2005, to June 30, 2006, there were 52 new payday lenders opened in the state. Across the country, there are more than 22,000 payday lenders. Last year, payday lenders collected $186 million in fees within South Carolina and $4.2 billion nationwide.
South Carolina is a hotbed for the businesses, says Rep. Christopher Hart, D-Richland, because payday lenders have been banned or heavily regulated in surrounding states, including Georgia and North Carolina. Hart is one of a handful of state legislators passionate about regulating the payday lending industry in South Carolina.
“We’ve been bombarded by the businesses,” Hart said. “They’re on every corner. Sometimes there are three, four or five in one shopping center, right next to one another.”
Payday lenders maintain that they provide a meaningful service to consumers who need extra funds in the event of an emergency. In addition, they say their fees are much less expensive than those banks impose for bounced checks or that utility or credit card companies might charge for a late or unpaid bill. In South Carolina, payday lenders may charge customers up to $15 per $100 transaction. Insufficient funds fees and credit card late charges average about $27 per incident.
“We believe we meet a strong consumer demand to provide means to obtain funds in emergency situations, such as unexpected child care issues or health problems,” said Jamie Fulmer, spokeswoman for Advance America. The Spartanburg-based company has 130 locations around South Carolina and 2,900 nationwide.
Cycle of debt
While customers who take out a loan and then pay it back within the allotted time (usually two weeks) might save money by using a payday lender, opponents of the industry say the majority of consumers who use payday lenders cannot afford to pay back the initial loan and so they take out a second loan to pay back the first and a third to pay back the second, thus entering a cycle of debt.
For Holbert, her severe dependence on payday lenders was a frustrating reality.
“It becomes an addiction. You can write a check, get $300 and do what you need to do with the money, but then if you get sick and miss a day at work, you’re still out the $45 you have to give the lender, plus you need to borrow more,” Holbert said.
“When I was paying my debt off for good, the lenders said they’d hate to see me go. I was the ideal customer for them. I always paid what I owed on the due date, but then I’d always take out another loan. I had one place where I could take out two $300 loans at a time, so I’d write two checks for $345. That’s $90 every two weeks, times 12 months, that’s a lot of money. That’s thousands of dollars over all the years I did this.”
If the $15-per-$100 fee is calculated as an annual percentage rate, it works out to about 391%. This is based on the fact that if a customer took out a loan, then continued to take out a new loan every two weeks in order to pay off the previous loan, the customer would end up paying $390 in fees by the end of the year and would still owe the principal $100.
“Once you pay a fee at a bank, that’s it, that’s the end of it,” said Hart. “With payday lenders, a customer may take out a loan, but most of these customers are on a fixed income. If something happens—their car breaks down, they have a medical emergency—and they cannot pay back their loan, they go to another payday lender and take out another loan to pay off the first one. If people could take out one loan and then pay it off before they were allowed to take out another loan, we could avoid this cycle of debt.”
Fulmer refutes this idea, saying this type of borrowing is not typical and therefore the fee should not be calculated as APR.
“On average our customers use our products seven or eight times a year,” Fulmer said. “Our customers are savvy enough to understand the cost of our product—and we exist because consumers like our product.”
<< Start < Prev 1 2 Next > End >>
|
