"Payday loans move up economic ladder; More middle-class consumers facing 'day of reckoning'" by Kim Christensen, Los Angeles Times | January 4, 2009
CLEVELAND, Tenn. - With its quaint downtown and tree-lined streets, this little city in the foothills of the Smokies seems an unlikely epicenter for a $50 billion-a-year financial industry.
But this is where W. Allan Jones founded Check Into Cash, the granddaddy of modern payday lenders, which cater to millions of financially strapped working people with short-term loans at annualized interest rates of 459 percent.
In years past, a worker might have asked his employer for an advance. Now, with a driver's license, a pay stub, and a checking account, he can walk into a typical payday loan store, postdate a check for $300, and stroll out with $255 in cash after a $45 fee.
No muss, no fuss, no credit check.
And for some, no hope of paying it back any time soon.
Americans pay as much as $8 billion a year to borrow at least $50 billion from payday lenders....
Yeah, we gotta get out of this borrow-and-debt cycle, folks, because that's how the monied scum are controlling us!
Nationwide, the number of payday outlets has exploded from zero in 1990 to some 25,000 today, running the gamut from mom-and-pop outfits to national chains.
Advocacy groups have long bashed payday loans as "debt traps," accusing lenders of baiting customers with easy cash and hooking them into an endless cycle of borrowing.
You know, like a bank.
But as the economy has worsened, payday loans have increasingly become crutches for those higher up the economic scale, said Elizabeth Warren, a Harvard law professor who serves as chairwoman of a congressional watchdog panel on the $700 billion bailout for the US financial system.
More middle-class families use the loans "to put off the day of reckoning," she said. "Too many families live with no cushion, so when something goes wrong, they turn to payday lenders."
Of course, it is NOT a PROBLEM if the GOVERNMENT DOES IT, huh? Pfffffttt!
As an alternative to payday lending, credit unions and other lenders have begun offering short-term, small-dollar loans at annual rates as low as 12 percent. But many borrowers are unaware of such options.
Although industry statistics show that many borrowers repay on time, others do not. Instead, they borrow from a second lender to pay off the first, or repeatedly roll over or "flip" their loans into new ones, sinking deeper in debt.
Sounds like Madoff's Ponzi scheme, doesn't it?
The Center for Responsible Lending, a nonprofit and nonpartisan advocacy group based in North Carolina, contends that the average payday loan is flipped eight times, pushing the cost of a $325 cash advance to $793....
Many payday borrowers make $25,000 to $50,000 a year, and many loan stores that don't offer check-cashing or pawn services are in middle-class neighborhoods....
Modern payday lending's roots reach to illegal "salary buying" of a century ago, when loan sharks charged workers up to 300 percent for cash advances on their paychecks. That led to government regulation of small loans, which eventually were made by finance companies and other traditional lenders. But as mainstream lenders abandoned the market, fledgling payday lenders stepped in - and quickly multiplied.
Still, payday lenders' profits are only slightly higher than those of banks and other financial institutions, according to a December 2007 study by Vanderbilt University Law School and the University of Oxford....
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Advance America was founded by George D. Johnson Jr., a developer and former Blockbuster Entertainment executive, and William Webster IV, a Fulbright scholar who hit big with Bojangles fried-chicken franchises and later worked for President Clinton....
Payday lenders have flourished in part by persuading state lawmakers to exempt them from usury limits and small-loan rate caps of 24 percent to 48 percent for banks and other financial institutions....
Of course, that is the government that is supposed to looking out for you, Amurkn!
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