PAYDAY LENDERS WHO LEGALLY CHARGE INTEREST RATES
AS HIGH AS 400 PERCENT -- ON "60 MINUTES WEDNESDAY"
Payday loans are among the fastest growing financial services in America -- now a $40 billion-a-year industry. Ten years ago they didn't exist, but today there are more payday stores in America than there are McDonald's restaurants. Payday lenders make millions of loans each year, but for many customers, the fees end up bigger than the actual loan; in one example a woman paid $10,000 interest on a $2,510 loan. Correspondent Scott Pelley's report on payday lenders will be broadcast on 60 MINUTES WEDNESDAY, May 18 (8:00-9:00 PM, ET/PT) on the CBS Television Network.
Getting a payday loan is easy because one doesn't need credit, just a job and a checking account. Here's how it works: A borrower writes a personal check to the payday store for the amount of the loan and the store gives the person the money minus a 15 to 30 percent fee. The store holds onto the borrower's check for two weeks before cashing it. If the borrower still needs the money, he or she can write the store a fresh check every two weeks, while the store continues to deduct the fees.
That's what happened to Sandra Harris when she took out a payday loan after her husband lost his job and money was tight. "All of it sounds like, you know, quick and easy and that's exactly what it was, but, you know, nobody told you about the bad side," remembers Harris, who borrowed $2,510 over two years and paid $10,000 in fees.
Willie Green, a former NFL wide receiver, owns three payday stores and is on the board of directors of the national payday trade association. Green says payday stores are for short-term borrowing and it's not the lenders fault if people like Harris abuse the service. "This woman did this on her own -- no disrespect to her," says Green. "Okay, I feel bad for her if this happened, but she did this of her own free will, okay? No one forced her into these stores to get these loans."
No one forced John Kucan, either, but once he started he couldn't stop. "It was almost like being addicted to it because then you get used to taking these loans," says Kucan, who was a Connecticut, state trooper until he was shot in the line of duty and disabled. He retired to North Carolina, but after a few years, his home state, Connecticut, said it overpaid his benefits and wanted the money back. He took a payday loan and renewed it every month for 16 months. He borrowed $850 and paid $2,400 in fees.
Jim Blaine is chief executive of the non-profit North Carolina State Employees' Credit Union. He noticed the explosive growth of payday lending when some of his customers got into trouble. "It's not a fair fight," says Blaine. "It's the consumer getting in the ring with Mike Tyson. I mean, we all may know the rules. It may be legal, but it's going to be ugly the way it turns out�.A loan shark only charges about 150 percent. Why would you go pay 400 percent? Any other choice on the planet is better�." Blaine's credit union is now offering a payday loan with an annual rate of 12 percent because, he says, too many of his customers were being financially ruined by payday stores.
The FDIC, the federal agency that regulates the banking industry, recently tightened its guidelines to warn banks that essentially they shouldn't give a consumer more than six payday loans a year. A few states have even tried to close the payday stores down, but many have managed to stay open. North Carolina, for example, home to John Kucan and Sandra Harris, has a consumer protection law limiting interest on small loans to 36 percent, but payday stores there still manage to charge annual fees of 400 percent without breaking the law.
Jeff Fager is the executive producer of 60 MINUTES WEDNESDAY and Margaret Ebrahim is the producer of this report.