With Payday Loans, Poor Get the Loans, Firms Get the Payday

Dallas Morning News
July 25, 2010
Case, Brendan

Millions of Americans borrow billions of dollars annually in payday loans, which cater to low- and middle-income customers by providing quick cash to almost anyone with a checking account and reliable income. Critics say the loans drag customers into a spiral of debt, taking valuable income while borrowers struggle to repay. Congress in 2006 passed a law capping interest rates for military personnel, and Texas -- a payday industry hub -- considers interest rates above 10 percent to be usurious. However, payday lenders in the state have found a legal loophole to skirt these caps by charging fees rather than interest. There are nearly 21,000 payday loan stores across the country, and they supplied $30.3 billion in credit to consumers just last year while generating $4.8 billion in sales revenue, according to Dallas-based financial analyst David Burtzlaff. Additionally, the industry provided $8.2 billion in online loans, he estimated. Some research has found that using payday loans makes it more likely that borrowers will file for bankruptcy, close a bank account, delay medical care, or become delinquent on a credit card. Brian Melzer, a finance professor at Northwestern University, concluded from his own study that the more people had access to payday loans, the more they had trouble paying basic costs.
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