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Worse than Loan-Sharking
"Loan-Sharking" equates to usury which is charging interest above an established legal rate. "Pay Advance", "Check Advance", "Deferred Deposit" or any other label like it is lower than loan-sharking. It is a legal, multi-billion dollar industry that you don't want to get lured into. This article discusses why not and offers practical alternatives to avoid advancing this very lucrative business practice.
As a young GI in Korea years ago, I remember none of us had much money. Gambling and "other pastimes" took the little we had before month's end-- but there were always the "friendly", black-market loan-sharks offering 50% interest loans. Guess who was always 5 feet away from the pay station on pay day... the Korean version of Don Corleone, of course.
It hasn't changed much. The lender still preys on the financially struggling individual. The pay back still revolves around pay day. The rates are still exorbitant. What has changed is that it's now legal, the APR exceeds 350%, and the client is not restricted to the military. The prey are now thousands of struggling, hard working folks who are having a tough time making it to the end of the month-- a very large group indeed, many of whom already have other problems. Many toil on very low paying jobs, have serious medical debt, gambling addictions... or worse. But they all are collecting pay stubs and maintain a checking account.
So the hard working, debt-burdened consumer sees a warm, friendly, office with an innocent name such as Pay Advance. "Is this an opportunity or what?" Sure it is... for the lender. Here's a scenario from real life copied from my Forum.
| "I owe nine check advance companies (companies that will let
you write a check for cash with a fee included) a total of $3000. I also have
approximately 15 checks I have bounced as a result of trying to pay off these check
advance companies. The total amount due of all the checks with fees is approximately
$1500. I have people calling me all the time and they are also calling my boss at work.
They tell me I can't make partial payments on my checks and almost all of them want their
money within ten days or they will turn it over to the county courts office." |
This was not an isolated letter. In fact on page 4, you'll find outstanding quips, gibes, and comments found while researching this article. Though somewhat superfluous, they were too pragmatic or clever to discard. Some are cute, some hilarious, and some-- well, a little dark. But the fact that the above letter is not isolated, will be of no great surprise.
The above letter is not isolated. --
check advance operations are springing up across the nation and may be one of the fastest
growing industries we have. The former owners of Blockbuster Videos sold their successful corporation to reinvest in their first pay advance operation. That was 3 years ago. There are now 1500 offices and that's just one conglomerate. Business growth like this does not occur without phenomenal profit potential. I would consider a 200%, 300%, or 400% APR a sizable potential profit, wouldn't you?
But another Forum posting referred to an article in a Memphis newspaper. The author of
the article queried one of the owners/managers of a check advance business and pointed out
the high fees [$20 for 7 days on $300] which worked out to be a 360% APR. The owner said "it didn't matter what the yearly rate was if you only needed the loan for a short period of time."
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