Blurb from from the Washington, DC NBC affiliate:

Payday lenders are turning to the ballot to preserve their interest rates. Liz Crenshaw has the details on that.

Let’s start with payday loans. These are loans that charge between 300 and 500 percent interest and, which critics say, target the poor. The Payday Loan industry has pretty much been driven out of business in our area and several other states by laws that have either banned them or capped interest rates. However the industry is now trying to bypass state laws by taking the issue directly to voters. The pitch is that the loans are an individual financial choice that shouldn’t be taken away by lawmakers. If the industry is successful this November, critics say it will begin placing the issue on state ballots around the country.

NBC4.com

[Ed. In truth, the typical payday advance customer represents the lion's share of America's middle class. A typical payday loan customer is a hard working, family raising adult who does not have savings or disposable income to use as a safety net when an unexpected expense occurs.

Here are the facts:

The majority of payday advance customers earn between $25,000 and $50,000 annually;

Sixty-eight percent are under 45 years old; only 4 percent are over 65, compared to 20 percent of the population;

Ninety-four percent have a high school diploma or better, with 56 percent having some college or a degree;

Forty-two percent own their own homes;

The majority are married and 64 percent have children in the household; and,

One hundred percent have steady incomes and active checking accounts, both of which are required to receive a payday advance. *

*Source: The Credit Research Center, McDonough School of Business, Georgetown University, Gregory Elliehausen and Edward C. Lawrence. Payday Advance Credit in America: An Analysis of Customer Demand. April 2001." ]

Source: The Typical Payday Loan Borrower is – You

Georgia and North Carolina banned cash advance loans in May 2004 and December 2005. The legislators in these states say they were compelled to act for the public good because of the claims from public interest group adversaries that pay day loans are a “predatory debt trap.”

The debt trap critique against payday loan companies seems based on three allegations: payday loans are expensive (“usurious”), payday lenders locate near their customers (“targeting”), and most payday customers are repeat (“trapped”) borrowers. After documenting that the typical customer borrows 8 to 12 times per year, the CRL (Center for Responsible Lending) concluded: borrowers are forced to pay high fees every two weeks just to keep an existing loan outstanding that they cannot afford to pay off. This “debt trap” locks borrowers into revolving high-priced short-term credit instead of reasonably priced longer-term credit.

Although the amount and availability of longer-term credit that may be available to payday loan borrowers, and the precise sources of that alternative credit, was never discussed, the debt trap critique has influenced lawmakers at state and municipal levels to restrict cash advance payday loans in their jurisdictions or to ban them outright.

Oakland and San Francisco limit the number and location of payday stores. Oregon and Pennsylvania recently joined Georgia and North Carolina in banning payday loans. New York, New Jersey, and most New England states have never allowed payday lending. By contrast, some western states (Washington, Idaho, Utah, and until recently New Mexico) have kept their laissez-faire policies toward payday lending.

The national patchwork system of payday loan regulation means that millions of people use payday loans repeatedly in some states, while their counterparts in other states must go without this often only legal source of bad credit loans. However one sees payday credit-as helpful or harmful-the patchwork regulations mean that millions of households are being wrongly treated by payday loan regulations.

The national adversarial controversy continues. Jane Bryant Quinn (financial columnist in Newsweek) recently warned that “payday loans can be a debt trap” (October 8, 2007).

The Federal Reserve Bank of New York Staff* tested the debt-trap claim of the payday advance loan by researching how households in Georgia and North Carolina have fared since those states banned payday loans. Their research investigated patterns of returned (bounced) checks at Federal Reserve check processing centers, complaints against tradional “approved” lenders and debt collectors filed by households with the FTC (Federal Trade Commission), and federal bankruptcy filings.

The monthly complaints data are new to this study; these data were obtained them from the FTC under the Freedom of Information Act. Changes in complaints within a state to identify changes in household welfare (well-being), a distinct advantage compared to the ambiguous measures (interest rates and repeat borrowing) emphasized by critics of payday lending. How do we know when credit is so expensive or burdensome that households are better off without it? The real test should be whether household welfare is higher with or without payday credit, and complaints are a measure of welfare.

Cutting to the chase, FRBNY Staff concluded that compared with households in states where payday lending is permitted, households in Georgia have bounced more checks, complained more to the Federal Trade Commission about approved lenders and debt collectors, and filed for Chapter 7 bankruptcy protection at a higher rate.

This negative correlation between reduced payday credit supply and increased credit problems, and decline in the general welfare in Georgia and North Carolina contradicts the debt trap critique of payday lending. The official citation to the referenced study is:

*Payday Holiday: How Households Fare after Payday Credit Bans
Federal Reserve Bank of New York Staff Reports, no. 309
November 2007; revised February 2008

Scotland on Sunday

WHAT do you do if you are only a week away from payday but your current account is empty? The typical response is to use an agreed overdraft facility, or juggle bill payments with a credit card. But what happens if both are “maxed out”?

You don’t have to be feckless or a spendthrift for it to happen to you: an unexpected bill or any emergency can hurt. If so, where do you go for help?

For increasing numbers of people, the answer to this short-term conundrum is a payday
loan; but be warned, as the rates of interest that go with them can reach a staggering 10,000% APR.

Despite the extortionate charges, the numbers taking out payday loans has soared by 130% in the past year, according to Tim Moss, head of loans at the price comparison website Moneysupermarket.

Moss says: “Payday loans do seem to be plugging a gap in the market. Nowadays, even missing a single payment on your credit card bill or going over your agreed overdraft limit can not only be expensive in terms of financial penalties, it will also leave a black mark on your credit file.

“In that sense, a payday loan is not always a bad option. They can be useful if you need short-term credit, perhaps if there is a blip in your monthly budget.”

In essence, a payday loan is a short-term cash advance, usually ranging between £80 and £800. The amount borrowed is repayable on your next payday. The maximum period of time you can take out a payday loan is 31 days, although in some cases it is possible to roll the debt over for another month.

Many web-based payday loan operations are owned by American companies with fairly obvious website names such as UncleBuck, QuickQuid, GetMeToPayday and PaydayCashToday. They have opened in the UK in the past 12 months after some state authorities in the US capped the rates they could charge over there.

Almost all payday loan companies operate on a fixed repayment structure: put simply, £25 is charged for every £100 you borrow. Some charge £30 per £100 borrowed. Using the common rate, if you borrow £100 you pay back £125. If you borrow £200 the total repayment will be £250, and so on.

This may not seem much. But over a term of 31 days it equates to a rate of interest of 1,286.1% APR. Ironically, if you were to pay back the loan sooner, the APR actually goes up, as the amount of interest is fixed.

Similarly, if you want to ‘roll the loan’ until the next month, the company may not only charge you the interest for that month but also an additional fee. In which case the APR could be anything up to 10,000%, depending on the extra fee charged.

Geoff Holland, chief executive of the British Cheque Cashers Association (BCCA), says that while attention has focused on web-based enterprises, borrowers can also obtain similar payday loan services from hundreds of high street shops, which offer to cash backdated cheques, as long as they come with a bank card. In this instance, borrowers make out a cheque for £100 and receive £88 in cash.

One principal at a cheque clearing firm with several branches in Glasgow, who refuses to give his name, says: “Take a look at some of the banks and what they charge each day if you go over your authorised limit. What we do is not so different from any big bank.”

Although payday loan companies hold a consumer credit licence from the Office of Fair Trading, the credit watchdog, they are not regulated by the Financial Services Authority, the UK’s top watchdog.

A spokesman for the OFT said it did not have any ongoing inquiry into the payday loan industry, although it is always interested to hear of any consumers’ experiences.

He added: “The OFT is shortly about to undertake a project looking at what constitutes responsible lending under the Consumer Credit Act and how this affects companies’ holdings of consumer credit licences. This project will examine several areas of consumer lending, including payday loans.”

Payday loans, it seems, are here to stay; the trick is to use them with care. Tim Moss says: “You should probably treat them as the financial equivalent of a taxi service: you might take a cab for a short journey home, but you wouldn’t book one to drive you from Scotland to London.”

How to find the best deal

Before going to a payday loan company, you might want to ask your bank to extend your agreed overdraft for that month, or ask your card provider for your credit limit to be raised temporarily. See if you can borrow the money from friends or family, or ask your employer for an advance on your wages.

• If you do need a payday loan, shop around. The Money Shop, an online lender, is currently charging “only” £9.99 for a £90.01 loan, instead of the usual £14.99 for an £85.01 loan.

• Don’t just look at the rate for the first month, but also the fee for extending the loan to subsequent months, in case you are not able to repay your loan right away.

• Payday loan providers will want some or all of the following details by fax or e-mail: bank statements – usually covering a two-month period; your last payslip; proof of address such as a utility bill; proof of signature, for example a passport, driving licence or credit card; and a photocopy of your debit card.