Payday Loans: Fast Cash, Expensive Debt Trap

Fresno Bee
August 1, 2009
Sheehan, Tim

While many states regulate payday loans and a federal law ultimately could abolish the practice on a national level, quick-cash loans remain perfectly licit in California for the time being. The state is a hub for the industry -- particularly in central San Joaquin Valley, where there are about a dozen stores for every 100,000 residents. That translates to nearly 200 locations compared to a statewide average of seven. California does limit payday loans to $300 but allows lenders to impose interest rates as high as 460 percent. Moreover, there is no law in place to control how many payday shops a borrowers can patronize at once or how many times they renew the debt after failing to make the initial repayment. The steep fees and short repayment periods spell trouble for many borrowers, according to Ginna Green, state spokesperson for the Center for Responsible Lending. "What catches people is that these loans are due in full in two weeks," she explains. "The combination of a short repayment and what amounts to a balloon payment is obviously a debt trap … for people who can least afford more debt. It's expensive being poor, and the very people the industry claims to help are the ones who get hurt. Someone who's already living paycheck to paycheck is not likely to be able to pay their loan back in full in two weeks."