Avoid Predatory Check Cashers and Payday Lenders During the Holidays
Wednesday December 7, 3:25 pm ET
SAN FRANCISCO, Dec. 7 /PRNewswire/ -- One of the best gifts people can give their families this holiday season is the gift of financial security.
Many people who can't afford to buy Christmas presents tend to frequent predatory lending establishments, and end up having to pay for holiday debt long after the season is over. Teresa Campbell warns against this. She got trapped in a cycle of debt at a very young age. She started borrowing money from a payday lender when she was in college in South Carolina, and said she quickly became addicted.
"I started going there literally every week," said Ms. Campbell, now a 32-year-old teacher at Performing Arts Studio West. "Eventually I had to stop because I was completely broke. Then I moved to California, and my lord, they are on every corner."
Check cashers and payday lenders crowd the streets of California's lower-income neighborhoods seeking to lure consumers through their doors with charming customer service, while they dramatically overcharge them. They and other financial predators have become one of the greatest obstacles to wealth establishment for many low-income families. And during the holidays, they are even more dangerous. People who need quick cash for holiday shopping end up becoming regular customers.
Payday lenders make it easy for people to keep borrowing money, Ms. Campbell said. All a person needs is a bank account and a pay stub to get cash from one of these lenders. They do not do credit checks, and although they say you can only borrow from one payday lender at a time, this rule is not enforced.
Ms. Campbell said that at one point, she had payday loans from up to five different establishments at the same time, and she ended up spending thousands of dollars trying to pay them off.
"The interest rates and fees that they charge you to take out that money is robbery," Ms. Campbell said.
For $255 in cash, Ms. Campbell would write a post-dated check for $300, paying a fee of $45 for the money. If she didn't have the $300 in her bank account on the date the check was to be cashed, she would go back to the payday lender and pay another $45 to extend her loan. If her check bounced when the payday lender cashed it, which she said would happen often, Ms. Campbell's bank would charge her $28. For this one payday loan, Ms. Campbell ended up paying $118 in fees -- almost 50 percent of what she borrowed.
"When you have those kinds of loans, you are just thinking about a quick fix," she said. "I can't put all the blame on them, but it's the same thing if you have crack cocaine in your area, and the crack dealer blames you for buying it. But the crack dealer's dangling it in my face, making it readily available."
An estimated 1.5 million California households use a payday lender 11 times annually for a $300 advance at a $45 fee ($15 per $100) each time at a cost of $513 million annually. This means that at least $2.9 billion comes out of lower-income Californians' pockets annually just due to the high charges of check cashers and payday lenders.
"Traditional mainstream banks have abandoned lower-income communities and communities of color while their role is being filled by predatory check cashers and payday lenders," said Alan Fisher, executive director of the California Reinvestment Coalition. "Millions of dollars are being taken out of the pockets of the working poor in predatory fees."
The lack of bank and savings & loan branches in lower income communities and communities of color has created a price-gouging opportunity for rapidly-expanding check cashers, payday lenders and finance companies that prey on consumers with few financial alternatives. The lack of competition from mainstream finance and huge profit opportunities have meant that the number of check cashers and payday lenders has increased nationally from 2,000 in 1996 to 22,000 in 2003, and is still growing.
"They don't have check cashing places in Beverly Hills, they have check cashing places in low income areas, on every single corner," Ms. Campbell said. "They prey on minorities or low income individuals because they are the ones already living check to check, and if anything happens, they don't have any other place to go for extra money."
Ms. Campbell said that when she was frequenting payday lenders, she didn't have financial literacy, and didn't know that there were better ways to use her money.
"When I look at the things I was buying with that money, I have nothing to show for it now," she said. "I wasn't buying a car; it wasn't a down payment on a house. I could have learned how to build my credit to borrow for those things."
Check cashers charge two percent or more to cash payroll checks that could have been deposited for free into a mainstream checking or savings account. And payday lenders charge a 500 or more annual percent rate (APR), when even an expensive credit card charges an APR of only 25 percent or less.
"There are other ways of doing things, if you are just smarter with the money that you do have," Ms. Campbell said. "It is all about discipline and setting priorities."
Victoria Leon Guerrero
California Reinvestment Coalition
474 Valencia Street, Suite 110
San Francisco, CA 94103
415-864-3980
www.calreinvest.org
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