a. What interest rate is Poor paying?
b. What other alternatives does she have?
c. isn't this incredibly sleazy on the part of the payday lenders?
d. Forget sleazy, isn't this illegal, at least in states that have usury statutes?
The newest controversy in consumer loans involves so-called "payday lending companies." Ima Poor is living from paycheck to paycheck. She can pay all her regular expenses, barely, but has no savings. One broken arm later and she finds herself $500 in debt. How can she pay? She goes to a payday lending company, which agrees to give her $100 in cash on the spot. In return, she gives the company a check for $130, which they promise not to cash until her next payday two days later. Unfortunately, but predictably, she cannot afford to pay the loan when payday rolls around, so she asks the company to renew the loan again, which the company is happy to do-for another $30 fee. She then takes out another payday loan to cover accumulated fees on the first one. One of the checks she makes out to the lender bounces. That costs her $80 in fees from the bank and the lender. When the lender sues her over the bounced check, she has to pay treble damages, $150 in lawyers' fees, and $60 for court costs. She ultimately pays $1200 on a total loan of $300.