Posted on 12/23/2003 10:45:33 AM PST by Holly_P
ATLANTA – When Charlene Jenkins of Augusta needed a little cash to cover some bills, she never dreamed she'd be the victim of an illegal practice the state has been trying to end for 100 years.
Jenkins fell prey to so-called payday lending, or what regulators a century ago called salary buying and wage buying.
New twists involve phone cards or catalog coupons, but the essence remains simple. Seeking a small loan, the victim spirals into a quagmire of rolled-over borrowing with fees, interest rates and other charges that lead to annual percentage rates as high as 1,500 percent.
"It was bad idea," Jenkins said. "I didn't know what I was getting into. This was just like a short-term loan where I thought I could just borrow it to till payday and not need it again."
It boils down to a borrower paying back the loan in advance with a check or bank withdrawal authorization that's dated ahead.
Then, if the repayment check bounces on the next payday when it's time to repay the loan, the lenders agree to roll the loan over till the next pay check as long as some payment is made. The lenders threaten borrowers who get behind by reminding them that writing a bad check is a crime.
According to independent marketing studies done by the investment firm Stephens Inc., the typical payday-lending borrower is like Jenkins, a single mother who rents, has a job paying $25,000 to $50,000 a year and has some college education.
Some, like Pam Allen of Stone Mountain, even work for a bank or payday lenders themselves.
In interviews, most say they just fell for something that sounded too good to be true.
"Especially around Christmas when people are running short of cash, it's tempting to go borrow $300-$400," Allen told a legislative committee recently.
Also testifying was federal security guard Sidney Harris of College Park. "The way the advertising is, it's such a simple procedure," he said.
Indeed, the viciousness of this simple lure is why Georgia made it illegal and strictly regulated as far back as 1904, said Sid Barrett, head of the Consumer Fraud Division of the Attorney General's Office.
"This is not new. This is an old problem," Barrett told members of the House Banking Committee on Dec. 3.
After nearly 50 years of failing to eradicate payday lending through strict laws, the General Assembly decided to repeal the laws in 1953 and legalize small loans with their higher charges. But it capped the charges at 60 percent.
Once again, 50 years after the last change, the legislature is considering a bill by Sen. Don Cheeks, R-Augusta, that would clamp down again.
It's passed the Senate and awaiting action by the House Banking Committee when the new session begins next month.
Barrett says the storefront payday loan operations that line the roads leading out of Georgia's military bases and through some of the state's lower-middle-class neighborhoods are operating illegally.
"I don't have any effective legal tools to enforce the laws that are already on the books, and the industry knows it," he said.
The industry feels so secure that it has trade associations and lobbyists and glitzy advertising like stockbrokers, bankers or other financial institutions.
The lobbyists want to change Cheeks' bill to fully legitimize their activity as has been done in more than a dozen other states. They add that companies operating under agreements with out-of-state banks couldn't be stopped from doing business in Georgia anyway because they would fall under the looser federal banking regulations.
Consumers just need to be smarter, said Steve Benjamin, lobbyist for the national Community Financial Services Association of America, which includes as members the 100 largest payday lenders. "Financial literacy is at the root of the issue," he said.
Maude Bates, a Savannah nurse, agrees in part.
"When you find out you have just been ripped off to this extent … I really have no one to blame but myself," she said, noting that she didn't read the contract. "I've learned from it, and it has been an experience."
When the legislature meets again in three weeks, Charlene Jenkins, Pam Allen, Sidney Harris and Maude Bates will be watching what becomes of Cheeks' bill.
So will hundreds of payday lenders and lobbyists for them and groups as diverse as the National Association for the Advancement of Colored People, the American Association of Retired Persons and the Consumer Federation of America.
If you won't be able to pay with cash on the next payday to avoid rollovers, then don't take out the loan. If you can, then the company has done you a service (which you paid for) by floating you some cash until payday.
They're everywhere, they're everywhere!
Which, if these legislators are successful, is where the business will go. As I always say, the government often creates the crime that it later complains about.
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