Payday Loans

1
Payday Loans Easy Cash or Financial Fraud?

• www.mypaydayloan.com

2
History of Payday Loans

• 1996 Law Change
• California Senate
• Legalized small, emergency loans from
  non-financial institutions
• Why the change?
• Save consumer money from check clearing
  scandal!
• No one will help cash strapped individuals

3
Is It Such a Bad Thing?

• Payday loan fees www.checkexpress.com
• 11 day loan for 100
• 17.5 fee
• Total payback of 117.50
• Not so bad, just 17.5 rate!

4
Thats What You Think!

• Not 17.5 APR, but rather 580.68 annualized
  rate!
• How can they get away with this?
• Must disclose period rate of loan, not APR!
• No limits on how much they can charge!

5
How Bad Can it Get?
6
How Can This Be Legal?

• These consumers are high risk
• How would consumer pay bills without this
  service?
• A one-time only quick fix
• Is illegal in some states, but
• Still done through Sale-Leaseback loophole
• Glorified Loan Sharking without Guido and
  broken legs

7
Other Services Offered

• Car Title Loans
• 20 per month (240 APR)
• Check Cashing
• Payroll Check 1.99
• Handwritten payroll check 2.5
• Personal Check 5
• Out-of-state personal check 8

8
Hypothetical Profile True Cost

• Worker earns 8.75/hour 350/week
• Cashes each check for 6.97 per check
• Costs him/her 362.18 for 52-week period, or more
  than one weeks pay

9
So why do people use these services?

• Average customer takes out 10-12 loans per year
• Foreign workers intimidated or overwhelmed by the
  financial system
• All storefronts have neon Se Habla Espanol signs
• Prey on individuals who struggle with the
  language or the financial system
• Poor workers who
• Dont have a bank account
• Dont have any or have bad credit
• Dont read or understand math

10
Experience at Check City

• Would not give me any documentation unless I took
  out a loan myself so, unless I started signing
• Individuals coming in to take out loans asked
  How much would it cost me to? instead of What
  is the percentage yield on?
• All APR were clearly posted, but no one who came
  in paid attention to them
• Very friendly until I told them I was
  getting information for a class

11
Alternatives to Payday Loans

• Take a loan from family
• Ask for an advancement on pay from your employer
• Take a small loan from a Credit Union

12

• "Credit unions become concerned that their
  members are being taken advantage of through that
  kind of lender," said Brett A. Thompson,
  president and chief executive of the Wisconsin
  Credit Union League. In the Landmark pilot
  program, which is available only through the West
  Milwaukee branch, customers who qualify receive
  unsecured loans of up to 1,000 at 18 annualized
  interest for 12 months. That amounts to a monthly
  payment of about 92. Landmark also offers a
  1,300 loan with a financial education element
  that is intended to train the borrower to save
  money for emergencies and stay away from payday
  loans. The credit union lends 1,300 at 13.9
  annualized interest for 12 months but allows the
  borrower to use only 1,000 of it. The other 300
  must go into the loan customer's savings account.
  "This way, it gives them an alternative from
  paying that high interest rate," Ransom said.
  "They can pay it back over a longer period of
  time in smaller installments rather than having
  to pay the whole thing back in a couple of weeks.
  And they end up with a savings account at the
  end."
• Paul Gores, Milwaukee Journal Sentinel

13
Alternatives to Payday Loans

• Cash advance on credit card
• Obtain overdraft protection on your checking
  account and use it
• Ask your creditors for more time to pay your
  bills. Find out what they will charge for that
  service - as a late charge, an additional finance
  charge or a higher interest rate.

14
Conclusion
Use All Other Alternatives Before Taking a Payday
Loan
It's important to pay particular attention to the
interest rate on payday loans. The rate on a
payday loan may be 500 per year or more.
Borrowing 200 for 2 weeks at 500 will cost you
38.36. Compare this to borrowing 200 for 2
weeks at 36 (2.76) or 12 (.92).
If this loan is refinanced four times, the cost
difference increases dramatically! In fact, it
will cost you nearly 200 to borrow 200 for ten
weeks