Quick Cash or Endless Debt?

Millions of Americans are tempted into getting quick cash from what's known as payday loans or quick tax refunds. But that temptation can lead to a debt trap that's almost impossible to escape. The ads promise money in a hurry. And at times it seems too good to be true. A commercial for one payday loan company went like this: "My wife fell in love with this car, and I needed another $500 for the down payment. So we went into Check into Cash, and 10 minutes later I had my down payment." A couple -- whose identities we cannot reveal for legal reasons -- lived on a fixed income. When they found themselves strapped for cash, they turned to a payday lender for help. They said, "Medical problems came up, we had expenses that were not covered on insurance, car repairs, this and that." And when they needed more money -- it was easy to get. "You know what," the couple said the loaners told them, "we're going to let you get more money because you've paid on time every month." And before they knew it they were in over their heads with more than eight different payday loans and no way to pay them off. They explained, "We would wind up having to pay back this loan to get money to pay that loan, to get money to pay back that loan, and then wind up at the end with just $42 for the month." Their story is not new. Payday lending is big business all across the country. Neil Walsh, a consumer advocate with Sowers of Justice, said, "It's a multi-billion dollar industry. There are more payday lending stores than there are McDonald's." Critics say the loans are almost criminal. That's because over the course of a year, the fees often add up to triple-digit interest rates -- even more than 1,000 percent in some cases -- a practice labeled "predatory lending." Walsh said, "The rate is what is so totally unacceptable. Because it is what causes the debt trap, and as long as there is a high rate that prevents people from paying the principal and can barely pay the interest level, they will not retire the debt." Mike Taylor is a debt counselor in Virginia. He says most people don't use the loans as emergency money as the industry claims. Taylor said, "People are not just doing it one time, paying it off being done with it. They're using it basically as a form of banking or as form of income for them." Another shortcut to cash comes in the form of "instant" tax refunds, offered by many tax preparation companies. This is from an H & R Block commercial: "How fast can H & R Block get you your money? Let's ask Mark -- 'How fast can we get our clients back their money?' Mark: 'Fast!' 'How fast?' Mark: 'That would be about 24 hours.'" But Taylor says that consumers should beware because those refund anticipation loans also tend to have high fees and interest rates. CBN News: What type of interest rate are we talking about? Taylor: 300 to 400 percent, APR…What people don't realize is that, when they think of paying for this anticipation loan - 'I'm getting back more than what I'm paying, so it must be a good deal.'" Taylor counsels victims of all types of predatory lending, most of whom are low-income. "They are preying on these families and consumers because of their perceived lack of education and financial education," Taylor said, "and the fact that they are living payday to payday." And the latest predatory lending practice is growing in popularity. Walsh said, "'Car title lending' is the next generation of payday lending." He explained, "Having your car title turned over to a lender -- then if you don't make your payments, having the key that you've given them and the title that you've given them, for them to come and repossess your car, take it away and auction it off for some portion of the value. You lose your car, you lose your transportation to work, and you lose the ability to pay for your housing to get to your job." A dozen states have banned payday lending, with several others considering tighter restrictions. President Bush also recently signed the National Defense Authorization Act, which includes an interest rate cap of 36 percent for payday loans made to military personnel. But many say the law doesn't go far enough. Walsh said, "All people should be protected, not just the military." The bottom line is, consumers need to be financially responsible -- something Taylor teaches his clients on a regular basis. "Be smarter consumers," Taylor said. "Be credit-savvy to be more financially responsible." CBN News asked a former victim of consumer debt, "What would you say you've learned from this whole payday lending experience?" "To budget our money wisely," the person replied. "To really, really try to put money aside, even if it means you don't buy some things in the grocery store that you'd really like to have -- not necessities. But even if you can put $25, $50 away -- anything to build a cushion so you don't have these situations where it becomes easy to go to these places."