Victims of Payday Lending: Arthur Jackson

Fading dreams: Arthur Jackson’s story

Arthur Jackson*
North Carolina
Occupation: warehouse worker
Advance America borrower for 5 years
Paid about $5,000 in fees on a single $300 Advance America loan


They’re known as “26ers” in the payday lending industry -- borrowers who come in every payday and give up another fee to avoid defaulting on a small loan they first took out weeks or months ago - sometimes even years ago. If their payday comes every two weeks, that means these trapped borrowers will renew the loan and pay another fee 26 times per year.

The nickname is an industry secret because the business model of payday lending is an industry secret -- that business model is dependent on the profits from repeat fees. Payday lending is set up to cultivate repeat borrowers like the “26ers,” flipping their loans into rollovers or back-to-back transactions. Over 90 percent of payday loans are made to borrowers who take out five or more loans per year.

Arthur Jackson* was caught in the cycle, paying repeat fees every payday without ever paying down his principal loan, for five years. He ended up paying roughly $5,000 in fees for one small loan.

The First Loan

At 69 years old, Jackson is still full of life and dreams. Surrounded by his grown children and young grandchildren, the divorced African-American warehouse worker keeps quite busy and fit. He is building a small addition to the home he bought three years ago, in hopes of opening a little beauty shop where his adult daughter can comfortably serve her clients.

Jackson was on his way to the grocery store several years ago when he first caught sight of an Advance America store offering cash advances at their strip mall store. “Let me check this out,” he said to himself. “How can I get me a loan?” Jackson felt more curious than desperate for cash. So he stepped in the store and asked what he needed in order to get an advance. All he needed, they told him, was a bank account, an income, and a driver’s license, and he could walk out in 15 minutes with $200 in his pocket.

So Jackson wrote a personal check for the lender to hold as collateral, and accepted the cash -- having no idea what he was getting into. How could he know that this business was set up to draw people like him into a cycle of debt that is very difficult to escape?

One After Another...

Jackson found, like most payday borrowers do, that when the two weeks had passed, he needed his paycheck for his weekly expenses. He found that paying off the loan in installments was not an option. But the clerk assured him that he could renew the loan, and pay another $35 fee to avoid default - which Jackson did. But the fees are not applied to the principal loan, so he still owed the $200.

And so it went. Every payday, rather than defaulting (which could mean bounced checks) or coming up short on grocery and bill money, Jackson went into the Advance America store, renewed his loan, and paid the fee. The clerks knew him by name, and often had his paperwork ready for him when he came in. He’d pay off the loan and immediately renew it, handing over the fee every time. So after two cycles, he had paid $70 in fees for the same $200 loan. After two months, he’d paid $140. After six months, he’d paid $420 - still owing the original $200. The annual interest on these loans comes out to an outrageous rate that is typically over 400 percent.

But Jackson wasn’t seeing it that way. It seemed to him that he was paying a cut ($35) of his paycheck to get his money early, when he needed it. At one point his loan amount increased, so he was paying $50 every two weeks to float the $295 principal.

Tallying the Final Costs

Jackson's heart sinks when he thinks about it five years later, after sitting down with a bankruptcy attorney and adding up the fees he’s paid. Now he knows what he’s lost. Jackson’s receipts document over $3,000 in fees paid to Advance America, and in actuality, he paid much more - roughly $5,000 over a five year period for one small loan, repeatedly renewed.

Jackson’s bright dreams are now dim. He paid those payday loan fees every pay period, but his mortgage payments fell behind. He recently filed bankruptcy.

Jackson’s story is extreme, but not unusual. Only one percent of payday loans go to the one-time emergency borrower. All told, predatory payday lending costs American borrowers over $3.4 billion per year.

With such a short term (typically two weeks), and without payment plans, the payday loan is a defective product. It is designed to keep borrowers in a debt trap, not to help them through an emergency.

The stories of Arthur Jackson and all the other “26ers” out there paint the picture in vivid colors. Payday loans are designed to trap the borrowers they are supposed to help.

* Name changed to protect the borrower's privacy.

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