Convenience-loan companies offer cash-strapped consumers access to funds, but at a hefty price
By Steve Tarter
of the Journal Star
Travel north on the stretch of University Street between Forrest Hill Avenue and War Memorial Drive and you’ll notice plenty of franchise outlets that don’t dispense fast food.
Convenience loans
The half-dozen stores in this area with names like the Cash Store and TitleMax serve money – fast. Welcome to the convenience-loan industry, where you get money in a hurry.
But that convenience comes at a price, say critics. So-called payday loans come with interest rates that average about 300 percent, according to Illinois Legal Aid.
Uncertain financial times are a contributing factor to the popularity of the payday loan business, said Tim Riggenbach, manager at Associated Bank, 125 N. Jefferson St.
“People are losing faith in the establishment. They see these places and understand they can get money there without thinking about the consequences,” he said.
[Ed. Thank you Mr. Riggenbach for telling us that payday loan borrowers are too stupid to know what they are doing. How much did you say your bank charges for an overdraft?]
“There are options to payday loans. People need to talk to their banker,” said Riggenbach.
[Ed. What are those alternative Mr. Riggenbach? And where are they? Payday loan interest rates are high but I have yet to see anybody complaining about them offering an alternative?}
Keeping people in debt
The growth in the payday loan business prompted action in 2005 from the Illinois Legislature, which capped rates at 36 percent on loans up to 120 days only to see loan companies shift to offering a longer-term loan that escapes state restrictions.
"The object is to keep people in debt. If (convenience loans) were structured to be paid off, the payday loan business model wouldn't work," said Don Carlson, executive director of the Central Illinois Organizing Project, a faith-based consumer advocacy group based in Bloomington.
"To understand the amount of interest (payday loan operations) charge, figure that if you borrow $500 by credit card, you'll pay about $17 in interest if you pay that loan off in six months. With a loan from Advance America, the largest of the payday loan stores, you'll pay $1,000 in interest alone. The rate is 400 percent," he said.
Advance America, based in Spartanburg, S.C., operates about 2,800 stores in 32 states, including five in the Peoria area - two along that stretch on University Street. Calls made to Advance America offices were not returned, nor were calls to other payday loan companies.
Advance America recently announced the closing of all 30 of its outlets in Arkansas following the closing of nine outlets in New Mexico after those states passed regulations "that prevent the company from continuing to operate in an economically viable manner," according to a prepared release.
"We regret that the elimination of a regulated and market-based credit option in Arkansas and New Mexico will, unfortunately, leave tens of thousands of consumers without a simple, sensible and responsible avenue for managing short-term financial challenges," said Advance America CEO Ken Compton.
Carlson thinks that "avenue" should be closed here in Illinois, as well. His group plans a "predatory lending summit" Saturday in Springfield to raise the issue with Illinois legislators.
"We're in a dogfight with the Legislature. We had a bill to close the (payday loan) loopholes that passed the Senate but it stalled in the House," said Carlson.
Convenience-loan outlets are not without influence, he said. The loan industry is one of the biggest financial contributors to political campaigns, he said.
Proliferation in Peoria
The proliferation of payday loan and title loan shops has become a problem, said Peoria City Councilwoman Barbara Van Auken, who earlier this year proposed a moratorium (passed by the council) to regulate the number of loan outlets to regulate the number of loan outlets in the city.
"We've gone from 14 to 29 in the last year alone," said Van Auken, referring to the number of "convenience cash" businesses now operating in Peoria.
[Ed. Title loan stores are not payday loan stores. Critics group them together even though they are entirely different business models because it keeps the water muddy.]
It’s no accident that the convenience-loan outlets locate in a group, said Carlson. “People have to flip loans to afford them,” he said, referring to the practice of taking out one loan to pay another.
“It’s walking distance to go from one to another,” said Carlson.
One of the new convenience-loan outlets on University Street is Cash America, a business that’s also walking distance from a very sound neighborhood, said Van Auken. “Cash America is also a pawn shop that, once licensed, will be able to trade in guns. That poses a daunting problem for a nice neighborhood just 30 feet away,” she said.
Steve Tarter can be reached at 686-3260 or starter@pjstar.com
Source: Journal Star
