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Health & Fitness

The Truth About Payday Lending

Payday Lending Facts From a Former Employee

As the legislative session kicks off this year, there are several key issues that will be addressed. One of the most pressing of those issues, is the issue of payday lending.

Payday lenders offer short-term loans called cash advances, or payday loans. In theory, the idea of borrowing some quick cash when one needs it, sounds like a good idea. The only problem is, it doesn't work that way. I know, because I was a payday lender. I was also a customer.

It works like this. A financially-strapped customer walks into a payday loan center. He provides some basic personal information, and a personal check. The lender offers a loan, based on the customers gross income, and then the customer writes a personal check for the amount borrowed, plus a fee of $10 for every $100 borrowed. The customer is given a due date two to four weeks in the future, when he must return with his payment of the amount borrowed, plus the fee. At that point, his check is returned to him and the loan is closed. Sounds like a done deal, right? Not exactly.

The truth is this. Ninety to ninety-five percent of payday loan customers continue to borrow and re-borrow, and in many cases, it goes on for years. They simply pay one loan, and then take another one out for the same amount right on the spot. In the end, consumers pay thousands of dollars in payday loan fees, for something they'd be better of without. In fact, I can't think of any other "product" that is more useless than the payday loan.

Payday lenders also charge an APR of 260% for their loans. Yet, they will tell you not to pay attention to the APR, since their loans are short-term and fee-based, and shouldn't be subjected to annual percentage rates. Then why in 2007 did Congress make payday lending to members of the military illegal? Because they deemed payday lending "a threat to our national security."

Thirteen other states have already outlawed this predatory form of lending, and now is the time for Rhode Island to be the next state to ban this ridiculous practice. If not, these out-of-state and out-of-country lenders will continue to make huge profits at the expense of decent, hard working Rhode Islanders.

What you've read is the truth about payday lending. Don't believe the industry's lies and rhetoric. The time is now for payday lending reform in Rhode Island.

Stephen V. Martino

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