If you take out a loan with Advance America, and lose your job before it comes due, they won't charge you their usual fee (APR of 200-386% for a two-week loan)

Pay no fees if you lose your job while you have a current cash advance with us.

Get a Worry-Free Advance, and if you lose your job while you have a current cash advance out with us, you'll pay no fees. It's one less thing to worry about. And one more way we're here for you with trusted financial solutions that make your life a little easier.

Of course, you still have to worry about paying the money back. And they won't be quite as sympathetic when you go take out another payday loan to pay the first loan back.

RELATED:
Study Shows People Take Out Loans At 400% Even When They Do Know Better
Most Payday Loans Are To Repay Other Payday Loans

Worry-Free Loans [Advance America] (Thanks, Nikki!)

(Photo: Hulgatha Doodlesack)

"Because the scammers have so much information about potential victims, BBB is concerned that this may be the result of a data breach," said Steve Cox, BBB spokesperson. "Thousands of people may have had their personal information compromised, and given the scammers' tactics, it appears that those who have previously used payday loan services could be particularly at risk."

According to reports received by BBB and posted online, the scammers accuse the victim of defaulting on a payday loan and claim they are being sued. The phony debt collector threatens that, if the victim doesn't pay as much as $1,000 immediately via wire or by providing bank account or credit card numbers, he or she will be arrested and extradited to California within the hour to stand trial.

As always with debt collectors, know your rights and be prepared to make some demands of the caller before you cooperate with anything they request. Here are three great places to start:

"Debunking The Debt Collectors' Spin Doctors"
Consumerist tag search: "debt collection"
Consumerist tag search: "debt collectors"

"Widespread Harassment from Phony Debt Collectors Raises Concerns of Mass Data Breach" [BetterBusinessBureau]
(Photo: _FXR)

In the face of impending legislation that would limit their dealings, some check-cashing stores played nice with the University of Chicago, allowing researchers to interview borrowers and distribute material that explained just how expensive these payday loans really are. The goal was to promote the idea that payday lenders could still prosper even if they were legally obligated to explain their lending practices in layman's terms.

The result? Even when people fully understood quite how much these loans cost them, nine out of ten people still took the money.

400 Percent APR — Is That Good? [Slate]
(Photo:Orin Optiglot)

• 1/2 of repeat loans are opened at the borrower's first opportunity, immediately or after a 24-hour waiting period, depending on state rules.
• 87% of repeat loans are opened within two weeks, or generally before the next payday.
• Only 6% percent of subsequent payday loans are taken out longer than a month after a previous loan was paid off.

Phantom Demand: Payday Lenders Create Their Own Demand With Loan Terms That Generate Rapid Re-Borrowing [Center For Responsible Lending]
Complete report (PDF)
(Photo: Tim Norvell)

"While they may not be JP Morgan Chase or Bank of America, they're very powerful. Their influence should not be underestimated," Gutierrez, the top Democrat on the Financial Services subcommittee in charge of consumer credit issues, said in an interview this week.

Indeed, the payday lending industry is strenuously resisting Gutierrez's measure, which it says would devastate its business. The measure would cap the annual interest rate for a payday loan at 391 percent, ban so-called "rollovers" - where a borrower who can't afford to pay off the loan essentially renews it and pays large fees - and prevent lenders from suing borrowers or docking their wages to collect the debt.

A newer player representing Internet payday lenders - a growing segment of the market - also ramped up its lobbying and political giving efforts. The Online Lenders Alliance, formed in 2005, nearly quintupled, to $480,000, its lobbying expenditures from 2007 and 2008. It contributed $108,400 to candidates in advance of the 2008 elections compared to about $2,000 in the 2006 contests. Gutierrez was among the top House recipients, getting $4,600, while the top Senate recipient was Sen. Tim Johnson, D-S.D., a Banking Committee member who got $6,900.

After watching members of the military fall prey to exorbitant payday loans, Congress in 2006 capped the interest rates for military payday loans at 36%. Fifteen states have similar caps or outright bans.

Congressman Gutierrez is competing with Congressman Joe Baca to see who can author the biggest giveaway. Baca's legislation would allow rollovers, higher fees for online banks, and would pre-empt state laws banning payday loans.

Someone—maybe Carolyn Maloney, who did an excellent job with the Credit Card Bill of Rights—needs to step up and punch the payday lending lobbyists in the face.

THE INFLUENCE GAME: Payday lenders thwart limits [AP]

A new bill proposed by Senator Richard Durbin (D-Ill.) would cap the interest rate on consumer credit transactions at 36%. Is it time for the government to reign in the lending market? Yes, it is.

Here are what some of those ridiculously-high interest rates look like in practice:

• A 3,500% APR on a bank overdraft protection loan means that if you overdraw your account by one cent, you will be charged $35.
• A 400% APR on a payday loan means that if you take out a $200 loan, you will be charged about $34 for the two-week loan.
• A 30% rate on a $1,000 credit card balance will work out to about $170 if you pay off the balance in one year (with payments of about $95/month).

We all know how we got here. Lenders made stupid loans and charged exorbitant fees to consumers who had no chance of paying them back. Many consumers defaulted; others will be servicing those debts until they die. Senator Durbin's bill would prevent lenders from making the worst kinds of loans, and consumers from getting them.

A 36% rate would not interfere with most lending. Credit cards rarely go over 30%, the usury limit that exists in many states. It will not prevent subprime or "liar" loans. Other legislation deals with those issues.

But it will prevent the worst kind of loans: short-term, high interest loans that can be the first stroke towards drowning in unmanageable debt. In order to continue doing business, short-term lenders would have to do a real risk assessment of borrowers and charge accordingly, instead of using aggregate risk data to treat everyone to the same, extremely high interest rate.

Some loans are just too risky to allow. Now that we know irresponsible banks can put the entire country at risk, not just the bank and the consumer, it makes sense to prevent loans where the risk is too great.

Durbin proposes to reinstate usury laws [US PIRG Consumer Blog]

Sam Glover is a consumer rights lawyer, enemy of shady debt collectors, previous Consumerist contributor, and writes the Caveat Emptor blog. His column appears the first Monday of every month on Consumerist (except this time because we messed up).

The scammers operate under names such as U.S. National Bank, Federal Investigation Bureau and United Legal Processing, said West Virginia Assistant Attorney General Norman Googel.

The callers also have invoked the names of actors Denzel Washington and Steve Martin, people who've received calls tell ABCNews.com.

Googel said that the scammers have been impossible to track down, but ABCNews.com spoke to one man who claimed to be associated with U.S. National Bank. The man said he works for Financial Crime Division, a company he said provides services for USNB.

The man refused to give his name and gave little information about his company.

Steve Martin? What? When ABC tried to get the fake debt collector to tell them about his company, he responded in a thick accent: "It's not necessary that each and everyone knows about Financial Crime Division, and probably one of them is you." Yep. Definitely one of them is us. (To hear a clip of this conversation, click here.)

ABC says the scammers are targeting people who took out payday loans and have access to lots of personal information that may have been stolen from payday lending websites. One consumer who was interviewed for the report said that he was intimidated into sending the scammers $800. They claimed he still owed the money on some loans he took out in 2005. He had paid the loans off last year, but threats of arrest scared him.

"I was scared to death," he said. "Everything they said literally just stressed me out to the max."

The scammers like to use scary-sounding terms that are meaningless such as "downloading affidavits," identify themselves as "Denzel Washington," and say they are calling from "Steve Martin's office."

ABC says consumers with complaints about U.S. National Bank are encouraged to contact the FTC, and their state attorney general's office.

Fake Debt Collectors Terrify Consumers [ABCNews]
Attorney General McGraw Warns Public of Fake Internet Loan Collectors Impersonating Law Enforcement Officers and Extorting Money From Consumers [West Virginia AG]

Serve City director Kay Waldo said she felt the people at the shelter were victims of a crime.

"Absolutely," she said. "I think they take advantage of the people here. I really do."

Waldo claimed that some of the people at the shelter don't even know how to read.

"They're being asked to sign something without even being able to read it," she added. "It's a crime as far as I look at it."

"If something was said incorrectly, let the circulator's name be obtained and we will take swift action to investigate and remove that employee if necessary." Norris added.

The payday lending industry, of course, has plenty of experience taking advantage of people.

WCPN produced a segment on the dirty industry's dirty campaign:

We're won't feign surprise that payday lenders are resorting to underhanded tactics. Usury laws, election laws, ethics; it's all the same crock of unreasonable bullshit to them.

Ohio Payday Lenders Caught Lying in Ballot Initiative Signature Drive [Consumer Law & Policy Blog via Caveat Emptor]
Payday Loan Petitions Doubted [WCPN]
Ohio Payday Lending Law Change Battle Heats Up [WCPO]
PREVIOUSLY: Ohio Passes Legislation That Will Punch Payday Lending Industry In The Face
Ohio Senate Passes Strict Lending Legislation, Prepares To Punch Payday Lenders In The Face
Ohio Punches Payday Lending Industry In The Face, Breaks Its Nose, And Laughs
(AP Photo/Seth Perlman)

House Bill 545 would slash the current interest rates charged by payday lenders to 28 percent, down from 391 percent, prohibit loans terms of less than 31 days, and limit borrowers to four loans per year. It would ban Internet payday lending, and it also attempts to encourage lenders to get into the small-loan business.

Payday lenders say the bill would quickly put their 1,600 Ohio stores out of business and 6,000 employees out of work. One industry lobbyist estimated that fewer than 150 stores would remain in Ohio, as some also offer other services, such as pawnshops or check cashing.

“This will, without a doubt, close the industry,” said Tiffany Verderosa, a Toledo-area manager for Fast Cash of America.

It seems that Ohio has finally had enough of the rapidly expanding payday lending industry: "“I think everybody said there is just no way to redeem this product. It’s fundamentally flawed, and it all too often traps people in a cycle of debt they can’t get out of,” Bill Faith, a leader of the Ohio Coalition for Responsible Lending, told the Dispatch. In the past 11 years, payday lending in Ohio has grown from a mere 106 stores to more than 1,600 today.

Senate approves tough payday-lending bill [Columbus Dispatch] (Thanks, Andrew!)
(Photo: eyetwist )

If you can't get out of this right now, start by advancing $50 less per pay period. Take the difference of what you were paying us in fees and start paying it into an emergency fund. Grab a job delivering pizzas, babysitting, whatever, and pay it into an emergency fund. Borrow less and less from us. Use the EF for actual emergencies. Once you are out of this, don't get back into it.

(Photo: ninjapoodles)

The state's largest payday lender, Advance America, claims the bill would either force them to close shop or accept losses of $100,000 per storefront. They are "very concerned" for the future of the 200 employees statewide who make their living cheating hard-working consumers.

...others argued that payday loans are an option that consumers need; without them, they said, people could be driven to less-savory choices, may depend more on their towns' welfare departments or have to scrimp on necessities. Other options facing someone who's broke - such as bouncing a check - are much more costly than a title loan, they said.

Sen. Bob Clegg recounted times of struggle in the 1970s and 1980s when he had to turn to the "black market" to tide him over. "You can fail, or you can take another chance," said Clegg, a Hudson Republican. "My position, I took another chance."

He would be too embarrassed to go to a welfare office, he said, and would rather "stand tall, make my deal with them and then make my payments because that keeps me a man."

Payday loan limits passed [Concord Monitor]
PREVIOUSLY: Payday Lenders Can't Afford To Lend You Money At Only 36%
(Photo: taberandrew)

Purporting to be a resource and awareness destination, the site contains such tips as "how to buy off a non-prof" to give your business the veneer of community support. A "testimonial" on the sidebar reads, "Even though I paid $800 in fees, the customer service representative was very professional." One section debunks various "myths" like, "It is unethical to charge a poor person 100 times the interest rate a rich person would pay."

We highly support The PLA and eagerly await for our membership to be accepted.

Predatory Lending Association

A randomly selected pool of Latin America borrowers who were just below the normal level of credit worthiness were approved for a 200% 4-month installment loan. A control group was denied based on normal policies. Tracked over the next two years, the group with the high-interest loan made more money, went less hungry, had better credit scores, and were happier than their control group. They also had higher default rates.

"Rolling over payday loans repeatedly might cost you big bucks," Yale professors Dean Karlan and Jonathan Ziman write, "but it can turn out to be a good deal if you need the initial loan to fix your car, hold on to your job and avoid losing even bigger bucks in after-tax earnings." They argue that it's lack of access to available credit that does more harm than the high interest loans. They say that policy makers shouldn't try to stop high interest loans from happening, and instead there should be maybe better loan disclosure laws, or opt-out employee savings plan.

Here's the thing, though. They're obviously trying to draw an angle to the pressure and scrutiny the American payday loan industry has fallen under. But compared to the rates American payday loans charge, 200% is nothing. We're talking rates of 400%, 651.79% and 800%. There's also all sorts of fine print fees which can trip consumers up. That's a whole different hog to roast than a straight-up 200% installment loan. We bet the tweed jacketed fellows would have seen higher default rates and lower levels of prosperity, happiness, and well-being had they run their experiment using American payday loan rules.

Also, they select from just below the line borrowers. Well, payday loans are given not just to below the line borrowers, but all the way down to the gutter bottom of credit worthiness, to people who never ever will be able to pay off the loan in full.

So, the profs end their piece by saying more research is warranted. We agree - let's see a similar study using some American payday lending rules. They may have some difficulty designing he study, however. In most areas, payday loans are unregulated. It will be difficult, then, for the people running the study to decide which kind of usurious payday loan to use as a standard.

In Defense of Usury [WSJ] (Thanks to Chris!)
(Photo: ninjapoodles)

The bill was the focus of various lobbyist shenanigans, perhaps best encapsulated in the person of former mayor Marrion Barry, who, despite initially co-sponsoring the bill, today ended up casting the only vote against it. ""We are putting this industry out of business," he said, concerned about the bills effect on they payday loan cartels and their employees.

Um, yeah, wasn't that the whole point?

District of Columbia Passes Payday Lending Bill [CL&P Blog]

That's a lady who is finally digging herself out of a payday loan hole with the help of a "non-profit" payday loan. At one point, Truckey was paying $600 a month in finance charges alone. Now she has a new loan through GoodMoney, operated by local credit union. The new loan's APR is only 252%, about half what she was paying before.

That's still a pretty crappy number, and it begs the question, does it really cost that much to lend money? 12 states disagree and have usury laws that prohibit payday lending. There's also an important book would-be payday debtors should read, called, "Don't Buy Stuff You Can't Afford."

Nonprofit Payday Loans? Yes, to Mixed Reviews [NYT]

The results of the study will be made available to other banks as a resource. "There is a tremendous appetite for small-dollar loans, but there are far too few low-cost alternatives for consumers to choose from," said FDIC Chairman Sheila C. Bair. "The pilot project our Board approved will be an important first step in filling the void that exists today."

We already know that banks bankroll payday lenders, will they step up and lend to the same people in a responsible fashion?

FDIC Board Approves Small-Dollar Loan Pilot Project (Press Release) [FDIC via Credit Slips]

PREVIOUSLY: Why Don't Banks Offer Padayesque Loans, Just With Lower Interest?

The chart above shows the who and how. It's a rework of a chart in the appendix of a report by the National Consumer Law Center, who in turn got their data from SEC filings and exhibits.

Kinda like finding out the hardware store owner sells crack on the side.

While companies are in business to make a profit, you gotta wonder, if there's nothing wrong with payday loans, why don't these banks offer it at their branches? — BEN POPKEN

UTILITIES AND PAYDAY LENDERS: CONVENIENT PAYMENTS, KILLER LOANS [National Consumer Law Report]

PREVIOUSLY: Maxed Out's Bombshells: 1. Wells Fargo Funds Payday Loan Chains 2. Celebrities Get VIP Credit Report Treatment

RELATED: Why Does AT&T Have 206 Payday Lenders Collecting Bill Payments?

1) Wells Fargo funds Cash Advance, a large chain of payday loan centers.
2) Credit reporting agencies make sure to keep the reports of high-profile people, like politicians, actors, and celebrities, extra-squeaky clean, so as to avoid potential trouble.

Number one is perhaps the most astonishing allegation, suggesting that some of the biggest household names in banking are bankrolling shady sub-prime and predatory lending.

WellsFargoProblems.com says Wells Fargo has extended various million-dollar lines of credit to several different payday loan outlets, Dollar Financial, Advance America, Cash America , ACE Cash Express

Who could resist getting into a business where you can charge 651.79% interest? — BEN POPKEN

PREVIOUSLY: Maxed Out: Take It For What It's Worth
(Photo: Orin Optiglot)

So, what's the problem? According to the NCLC, locating bill pay centers in payday loan shops expose the most vulnerable consumers to heavy doses of payday lending "marketing" as well as high-pressure commission-based loan salespeople. And, despite the fact that utilities are closing down payment centers in favor of outsourcing and encouraging consumers to use electronic bill payment, the demand for in-person bill payment is growing by 5% per year.

So who are these mysterious consumers who like to pay their bills in person? According to the report they are also the sort of consumers who are most likely to take out a payday loan.

There is evidence that demand for in-person bill payment is strongest among low-income, minority and female customers. A 2004 study by Pacific Gas & Electric Co., a California utility with 5 million customers, described the company's in-person bill payers as "lower income types, and credit averse individuals who have no other means of payment than cash."

Or, as CheckFree tells prospective bill payment agents, collecting payments "offers the opportunity to turn a bill payer into a loyal customer."

Utility walk-in customers make especially good prospects for payday lenders, check cashers and other high-cost lenders. Expansion of the market for high cost financial services has been fueled by population growth and "declining to stagnant growth in household income of lower- and middle-income people," payday lender ACE Cash Express said recently. The company described its primary market as "the nation's approximately 60 million unbanked and underbanked individuals."

To a payday lender, a loyal customer is one who rolls their first payday loan over into a second, a third, even a forth and fifth loan, racking up fees and interest that can be double or triple the amount of the original loan. Far from being the exception to the rule, this sort of "loyalty" is the norm for payday lending customers. In fact, 9 out of 10 payday loans go to consumers who take out more than 5 such loans a year. The interest rate on a typical payday loan can be 400%.

From the report:

For retailers slow to make the connection, CheckFree has a pitch ready. "You have the stores. You want more customers. We have the solutions." CheckFree says it acts as an intermediary between 11,000 third-party bill payment collection sites and 150 billers, including 50 utility companies, who farm out collection services. "Walk-in Bill Payment Services offers retail locations an easy and inexpensive way to generate foot traffic, retain more customers and grow your business," the web site adds. "In fact, it costs you nothing and it even pays you a commission." CheckFree, a company 10 percent owned by software giant Microsoft Corp. handles PG&E's bill payment outsourcing.

CheckFree posted 2006 revenue of $879 million, recently had a market capitalization above $3 billion and includes on its board the former chairman of Visa International and former high-ranking executives of Bank of America and State Street Research. CheckFree also lists Progress Energy, Southern California Edison, AT&T, BellSouth and Verizon as customers for its outsourced bill payment services.

Although payday lending is skyrocketing in "popularity" (the total amount of payday loan outlets grew from 2,000 in 1995 to 24,000 in 2007) the report argues that it's not a reflection of consumer choice that bill pay centers are so often located in payday lenders. Only 7% surveyed said they prefer a payday lender as the location of a bill pay center. 4 out of 5 chose a grocery store as their preferred location.

So why are utilities sending their most vulnerable customers to locations where they will be subjected to a high-pressure commission-based predatory lending sales force? Simple. It saves them money. —MEGHANN MARCO

UTILITIES AND PAYDAY LENDERS: CONVENIENT PAYMENTS, KILLER LOANS (PDF) [National Consumer Law Center]
(Photo: NCLC)

She shows how they played down the 400%+ APRs. She talks about about how rather than be the financial tool that the payday loan industry makes them out to be, payday loans actually keep most of their clients poorer. She says she has "no idea" why elected representatives would keep supporting payday loans.

We have some idea: because the payday loan industry is giving them big donations. — BEN POPKEN

Payday Loans Trap Borrowers [Center For Responsible Lending]

This report shows in 24 out of 25 MSAs [Metropolitan Statistical Areas], urban areas that have dense populations have fewer bank branches — therefore fewer mainstream banking opportunities — than the less populated suburbs. Without the ability to build relationships with the regulated banking community, working class and minority neighborhoods are more likely to use "fringe" services, such as payday lenders and pawnshops, for small loans. They are also more likely to have their home loans originated with mortgage brokers and subprime lenders, which often led to foreclosures and unmanageable monthly payments.

The NCRC recommends that banks view poor and minority neighborhoods as an "untapped market area ripe for expansion." In case that doesn't work, the report suggests regulators revamp their application of the Community Reinvestment Act, the landmark anti-redlining legislation passed back in 1977. — CAREY GREENBERG-BERGER

Are Banks on the Map? (Press Release) [PR Newswire via Chicago Tribune]
PREVIOUSLY: Do PayDay Loan Centers Target The Poor?
Do PayDay Loan Centers Target Minorities?

The vote failed 82-77 in a Republican-led House. The bill would've replaced Georgia's 3-year old ban on payday loans with a system letting lenders charge $15 for every $100 borrowed.

Georgia is the only state with a payday loan ban.

The payday loan industry is gearing up its lobbying efforts to legalize and legitimize their advantage-taking of impoverished Americans. It will take our elected representatives' resolve and integrity, and our clamor, to resist these efforts. — BEN POPKEN

House defeats payday bill [AP] (Hat tip to raising4boys!)
(Illustration: Andrew Mason)

"According to data supplied by the Children's Action Alliance, there are now more payday loan facilities in Arizona than there are Starbucks and McDonalds combined," she says.

"In the real world and on a daily basis we meet people who have 5, 6, 7, 8. I met one man who had 10 loans at the same time."

House Cmte. Approves Payday Loan Bill [KTAR]
(Photo: ten safe frogs)

At a press conference designed to coincide with the release of the new credit card documentary, "Maxed Out", AFFIL spilled the details on what exactly they stand for and The Consumerist was there to soak up the details.

According to Executive Director Kirsten Keefe, AFFIL's goal is to, "Raise awareness in America and to shine a spotlight on the consumer debt industry." The concept had arisen two years ago when a number of consumer groups had banded together and decided that more should be done to raise the national awareness of debt issues. Hot on the agenda of topics that were to be brought up were not only payday lending, but sub-prime home mortgages, and how credit cards have become the new "Safety Net" for citizens across the US. Each topic is a key focus under the umbrella of "Predatory Lending" that AFFIL aims to disarm.

AFFIL's new marketing push comes on the heels of the announcement by payday lending trade association, Community Financial Services of America (CFSA), of their new commitment to self-reform (see "PayDay Loans' New Ad About How Payday Loans Are For Upstanding Citizens" and "PayDay Loans Are Awesome"). However whereas the CFSA's campaign goal was to announce their new focus on ethics and reform, possibly in hopes to avoid a swath of legislative proposals, AFFIL hopes to encourage actual legislative change.

AFFIL Member Groups Previously Aligned With Payday Lending.

Although payday lending is an AFFIL concern, their focus appears to be on gross abuses rather than the industry as a whole. In particular, the CFSA is already strategically positioned outside of the target of AFFIL's upcoming war on predatory lending and in some cases even worked closely with some of AFFIL's members.

At the press conference, The Consumerist asked AFFIL about how it responds to common statements that payday lenders make, such as their loans being a "viable financial tool for people with short term money problems." The question was posed to their panel and was picked up by Marva Williams, Senior Vice President of the Woodstock Institute, a non-profit research organization. Williams was quick to point out that the Woodstock Institute had actually aligned with the CFSA in Illinois to help push a series of self-reforms, also adding that, "Payday loans are very easy to get into, and very difficult to get out of. Although they may be a somewhat viable short-term alternative in the long-term they are very onerous."

Although this sounds like the Woodstock Institute is against payday lending in excess, they certainly weren't against the industry as a whole. The "Payday Reform Act" was passed into law on June 9, 2005, and served a major boon to both the Woodstock Institute, which received major credit for helping the CFSA establish reforms, and to the CFSA itself, who managed to use the reform as a coup against their local competitors. Williams was quoted by the Chicago Sun-Times in February 2005 as saying, "We wanted to develop consumer protections, but we also wanted to do so in a way that allows people to take out a payday loan in Illinois."

Along with the Woodstock Institute, at least one other AFFIL partner, the National Urban League, has worked directly with the CFSA.

Regardless of any AFFIL partners previous work with the CFSA, Williams makes it clear that a Credit Union payday loan is a much better alternative than a payday loan off the street, even pointing out that for many Credit Unions an interest cap of 18% APR is financially sustainable. In a follow-up Williams points out that, "They've developed underwriting practices that allow many of the credit union members to access this product, but they've also incubated some very important consumer protections as well as integrating financial education and automatic savings incentives that really help make the product financially sustainable for the credit union but also offer benefits to the payday loan borrower as well."

Fundamental Change in Credit Markets

The last speaker at the press conference was Professor Elizabeth Warren, Leo Gottleib Professor of Law and author of, "The Two Income Trap: Why Middle Class Mothers and Fathers are Going Broke". Perhaps the most impassioned speaker to take the microphone, Warren laid out a damning case against the credit card industry:

"In the last twenty five years, the size of a contract that governs that [credit card] relationship has gone from a page long to more than thirty pages long and the reason for that shift is that the business model has fundamentally changed." Says Warren, also adding, "Card companies still make money like they always did, with merchant fees and annual fees, but what has changed is that when they can pass out cards to everyone, make a little money on any of those transactions, but then catch the customers who stumble in the slightest; the one who loses a job, or gets sick, or just falls a little bit behind. That's the customer who ends up paying the 29 percent default rate of interest, 39 dollar late fees, 49 dollar over limit fees, extra interest and double cycle billing and whatever else the credit card company wants to dish out."

Though despite the feeling like Warren managed to nail the issue on the head, it's hard not to feel like AFFIL is a great organization that shows up after the tornado has touched down and the house is already destroyed. Much like the family shown destitute in their marketing literature, maybe the picture wouldn't have been so bleak if there were more Elizabeth Warrens sounding the bullhorn 15 years ago. As it stands, credit card companies and lenders have gotten away with their tactics for far too long and have much more money than the paltry $500,000 dollars that AFFIL has brought to the table (according to the NYT they're hoping to solicit more money). We'll probably go and catch a copy of "Maxed Out" when it comes to a theater near us, but in the mean time we'll be interested in seeing if the AFFIL puts their money where their mouth is and gets real pro-consumer lending reforms enacted.

— THOMAS MOORE

References:
AFFIL official site
AFFIL's Principles of Fairness in Lending
Critics of Lending Practices Adopt Harder Edge [New York Times]

...it is more advantageous to the individuals who make decisions in banks to stick to traditional fee-based revenue streams that are booming rather than staking their career on an untested product.

A few scattered credit unions have given it a whirl, but major banks should step up. C'mon boys, new revenue stream. — BEN POPKEN

Stegman on Payday Lending [Credit Slips]
(Photo: northernplateguy)

UPDATE: Ralph writes, "US Bank does, and has been for I think a little over 6 months. I happened to log on to internet banking and saw the option to request an advance pop up just above my account info. There is a $500 limit and it pays off once a direct deposit hits your account. It looks like the rate is 10% of whatever you request."

Soft music plays in the background of a new TV ad campaign as it urges viewers to use payday loans only 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 Assn. A new emblem will tell borrowers which lenders meet his trade group's requirements, Andersen says in the ad.

The ads are part of a $10 million campaign, coupled with a few policy changes by CFSA members, designed to burnish the industry's image in the face of increasing scrutiny by state legislators. But don't be fooled by these scraps, or their attempts to cloak themselves in probity and decorum, they're still fu***** ass****. — BEN POPKEN

Payday loan industry acts to quell criticism [LAT]

Mary Jackson, speaking for the Community Financial Services Association of America (CFSA) said:

When you look at some of the research that's been done on our rate-structure and fee base, it's usually a lower-cost alternative for consumers.

Apparently, payday loans are a viable money-management tool. In fact, we hear that Ben Stein and Warren Buffet use payday loans all the time. — BEN POPKEN

(Photo: Legotech)

Let's say times are tough and Jack needs $100 to fix his car. Jack goes down to the local payday loan company and they agree to give him a loan. So Jack writes a check for $125 and gives it to the payday company and they give him $100. Two weeks later, Jack gets paid and the payday loan company cashes Jack's check, closing out the deal.

Now, take a wild guess as to how much the APR (Annual Percentage Rate) is on Jack's loan...

How about 651.79%!

Here's how that's figured:

APR = i (365 n)

where...

i = periodic interest rate, which is 25% in this example ($25 fee $100 = .25 or 25%)
n = time period of the loan, in this case 14 days

Filling in the numbers, our formula looks like this:

APR = .25 (365 14)
APR = .25 26.0714
APR = 6.5179 or 651.79%

Hopefully the same subset of the population that might seek a payday loan crosses over with The Consumerist reader demographic... — BEN POPKEN

Just How Expensive is a Payday Loan? [All Financial Matters]
(Photo: ozczecho)

• Place a ban on advertising loans for "frivolous" purposes such as gambling, entertainment or vacations
• Add language to all marketing materials warning borrowers that "payday advances should be used for short-term financial needs only, not as long-term financial solutions."
• Introduce an extended payment plan that may be used once a year for those who can't pay their bills on time.

Will these changes make any difference? I doubt it. — JLP
Payday Lenders Strike a Defensive Pose [WSJ]
(Photo: hanneorla)

The bill imposes no limits on the currently 391% interest rates, but do limit the amount of loans allowed to be given to a single borrower. The Washington Post reports,

Just like when you swallow poison you can either get your stomach pumped, or you could take an axe and chop it out. — BEN POPKEN

House Passes Payday Lending Reform Bill Without a Rate Cap [Washington Post]

Previously:
Virginia Payday Lenders To Charge Infinity Interest
Do Virginia PayDay Loan Centers Target The Poor?

This particular lender offers two types of loans. One is for 14 days and charges $15.50 for every $100. The other is a 140 day loan that works like the 14 day loan, except every 2 weeks you come in and pay $15.50.

Illinois defines payday loans as being less than 140 days. This loan is structured specifically to fall outside payday lending laws.

Math problem: Assuming a $1000 loan, what's the interest rate and total amount owed if you did the 140 day loan for 365 days and only paid the $15.50 every 14 days? — BEN POPKEN

Talking to a Payday Lender [Credit Slips]

New Mexico is one of the poorest states in the nation, and has virtually no laws regulating payday lenders, making it a perfect breeding ground for these usurious knaves.

The state is currently considering legislation that could potentially put the payday loan industry out of business in New Mexico... boo-hoo. — BEN POPKEN

'Payday Loans' Plague New Mexico's Working Poor [NPR]

In counterbalance, the bill limits the amount of payday loans made to a single person to 3, whereas before there was no limit. Of the 446,000 Virginians that took out payday loans in 2005, 91,000 borrowers took out 12 different payday loans each, according to the State Corporation Commission.

When asked for an explanation of the bill, a lawyer for the committee said, "The language was produced by the industry."

From 3.3 million payday loans in 2005, the industry gleaned $1.1 billion in revenues.

Hopefully the governor rejects the bill, and doesn't bend over for the loan sharks like a willow in the wind. — BEN POPKEN

House committee OKs bill on payday lending [Times Dispatch via CL&P Blog]

The thought of washing down a Big Mac with a chai was too appealing to ignore, so we mashed up Richmond, Virginia's 1990-2000 Poverty Statistics by Census Tract along with Payday loan center locations. * Click to enlarge.

Richmond payday centers seem to roughly prefer to sit on the edges of areas with 15-30% poverty. People got to have a paycheck to give them an advance on, with 177% interest.

If a worker is short of cash and gets their full next paycheck advanced to them, how are they ever supposed to catch up?

With a windfall investment, or perhaps, another loan. — BEN POPKEN

* Combining 2000 poverty data with 2007 addresses is, admittedly, less than ideal, but it was the best we could get our hands on.