Trapped by payday lenders: Wisconsin consumers share their story

Monday, May 11, 2009

Crystal

Married, No Children

From Waukesha, Crystal and her husband bought their first home in 2005. The couple was able to afford their mortgage and bills until Crystal unexpectedly lost her job. Money became tight and the couple started falling behind on their bills. The couple decided to go to a payday lender to get fast cash to help pay their bills.

Loan #1. Crystal’s husband took out the first loan as he was the only one working. The payday lender accepted a personal check from him after checking his recent bank statement and providing proof of employment. However, the payday lender did not check his credit history or verify his ability to pay back the loan. The whole process took about five minutes, and he walked out with $300 cash after paying a $66 fee for the 14-day loan at an APR of 573.57%. Fourteen days later, the couple was unable to pay back the loan so they paid an additional $66 to roll it over for 14 more days. They did this a total of three times until they took out a second payday loan to cover the cost of the first one.

Loan #2. The couple applied for $600 in fast cash from the same payday lender. Again, it was a 14-day loan with an APR of 573.57% and fees of $132. Two weeks later, they were unable to pay back the loan so they rolled it over three times until taking out a third loan to help cover the second loan.

Loan #3. A different payday lender was used to get a third loan. The couple received $700 after paying $154 in fees for a 14-day loan with approximately a 670% APR. With second loan still open, the couple could not afford to pay off this loan. Instead, they rolled it over three times before applying for a fourth loan to help cover this one and the second loan.

Loan #4. Crystal’s husband used the same payday lender to get a fourth loan for $800. After paying $176 in fees at an APR of approximately 660%, he walked out with cash and a 14-day loan. Once again, the couple could not pay it off two weeks later so they rolled it over three times until securing a larger loan to pay it off.

Loan #5. The couple took out an even larger loan this time. This time the payday lender approved them for a $1,000 loan even though they still had two loans open, and their ability to pay back the bi-weekly interest payments was becoming impossible. The couple paid $220 in fees to secure the $1,000 loan at an APR of about 665%. Again, the full $1,000 was due in 14 days. Again, the loan was rolled over three times and a fifth loan was obtained.

Loan #6. A sixth loan for $400 was obtained from a fourth payday lender. The couple paid $88 in fees with nearly a 680% APR for a 14-day loan.

By this point, the couple had four payday loans open. Crystal and her husband were paying over $600 in fees every 14-days or $1,200 per month. The couple put their entire pay check toward paying for interest on their payday loans without putting a dent in the loan’s principle or paying their mortgage. The situation became financially and emotionally overwhelming.

The payday lenders called to remind them of their upcoming payments and one even came to their house to demand payment.

Sadly, Crystal and her husband decided that the only solution was to file bankruptcy.

Today, Crystal says that the payday lenders made a pay situation worse. The loans may have helped for the moment, but the high interest ultimately led them to bankruptcy. She was amazed at how quick and easy it was to obtain fast cash from a payday lender. None of the lenders ever checked on her ability to pay back the loan or her credit history, which meant that they made loans that Crystal would never be able to pay.

Note: The loan paperwork was unavailable at time of the interview. Annual Percentage Rates calculated based on payday lender web sites and loan term

Katrina

Married, 4 children

Katrina, who lives in Waukesha, went to a payday lender when she needed money to start out on her own after a broken engagement. She obtained two payday loans, one for approximately $200 and a second for $300. The loan process took less than 10 minutes and she was only required to show proof of a checking account and a paycheck stub. The payday lender did not ask any questions about her credit history, length of employment, annual earnings, or ability to pay. Katrina admits that she really did not understand the repayment process as the lender did not fully explain the loan terms.

Katrina did not make her bi-weekly payments of approximately $40 in the store so the payday lender automatically withdrew the payments from her checking account without her knowledge. After about four loan rollovers, the payday lender overdrew her checking account. The automatic withdrawals caused Katrina to be overdrawn in her checking account, which resulted in overdraft fees from her bank and returned check fees from the payday lender. Katrina could not afford the extra $50 in fees every two weeks in addition to the interest on the loan to keep rolling it over. She eventually was able to pay back the loan after paying over $400 in interest, overdraft fees, and returned check fees. All of which showed up on her credit report.

Katrina took out a second loan for $300 when she needed money to move. Again, she rolled over the loan multiple times and paid the interest-only fees every 14 days. Eventually, Katrina could not keep up with the loan payments and stopped paying. About six months later, she was served small claims court papers at her apartment by a Milwaukee County Sheriff’s Deputy. The payday lender was taking her to small claims court. Katrina appeared in court and had a small claims judgment to pay back the loan under a new payment plan. The judgment appears on her credit report and if it goes unpaid will eventually result in a lien against any property she owns.

Katrina continues to suffer the consequences of taking out a payday loan in 2004. The unpaid payday loan in the amount of $357 has had a major impact on her credit history and her credit score is ruined. She is not able to obtain a mainstream loan and is now a prime customer for payday lenders.

Katrina has stated that she will never use a payday lender again. She has said that she would rather “go without” instead of ending up in the debt trap of payday loans.

Jennifer

Physical Therapy Student

Jennifer is a full-time student pursuing a degree in physical therapy. She also works part-time for a federal government program that assists youth find jobs and is the single-parent of a young daughter. Two years ago, Jennifer needed money to pay for rent when she decided to go back to school full-time. She felt that she did not have any other options, and her parents suggested that she use a payday lender to get fast cash. Jennifer’s parents were frequent customers of payday lenders.

Jennifer’s neighborhood in Milwaukee had an abundance of payday lenders. She showed her paycheck stub, a driver’s license, and proof of a checking account. Jennifer easily qualified for a payday loan of $400 and wrote a personal check as collateral. She said that she understood how the payday loan worked, but knew deep down inside that she would have trouble paying back the loan in two weeks with her next pay check.

Two weeks later, Jennifer was unable to pay the loan back in full and opted to pay the fees instead. She rolled over the loan for several pay periods, until she finally paid it back by getting a loan from a second payday lender. The cycle continued as she continued to secure loans from various payday lenders all located on the same street. Eventually, she had three payday loans open at three different lenders and was unable to keep up. At this point, Jennifer stopped paying interest on the loans.

Jennifer recently filed for bankruptcy as a result of the payday loans. While she some medical debt and back payments for utilities, her main debt was from payday lenders. Jennifer estimates that she took out $1,500 in loans from payday lenders and owed approximately $6,500 in back interest. Her parents have also filed for bankruptcy. Jennifer states that she will never use a payday lender again because it left her worse off and ruined her credit. 

Patricia

Retired Nursing Home Aid

Patricia, a retired nursing home aid, is a City of Waukesha resident who needed extra money to pay for moving expenses. She recently had some medical issues and decided that it was best to move closer to her family. Patricia had to pay double rent for one month and also rent a small moving truck. This was more than she could afford on her small monthly disability income. Since her other family members were also struggling financially, she felt that she had no other options at the time, but to seek fast cash from payday lenders.

Patricia used the services of two payday lenders, Check Into Cash and Speedy Loan. While she felt that she understood the terms of the loan, she knew she could not pay the loan back in full and would have to pay the loan back in installments. Patricia took out three loans in the amount $200 (APR 273.75%), $200 (APR 286.79%) and $150 (259.03% APR). The fees amounted to $123.50 for the $550 borrowed or about $22 per $100 borrowed.

Patricia immediately began making three separate payments each month of $46.50, $45, and $33. She has since rolled over the loans 18 times by paying the finance charges of $123.50 to avoid having her personal checks cashed. She quickly learned that the minimum payments she was making were only covering interest thus making it hard to pay down the principal of her loans. This means that Patricia has paid $2,223 in interest only and not one penny toward the principal balance of $550.

Patricia is retired and on a limited income so she finds it hard to keep up with the fees and monthly payments. She is working with a financial counselor to find a solution to this debt trap, while preserving her good credit score. Once her loans are paid off, Patricia has stated that she will never use a payday loan service again.

Lisa

Single Mother

Lisa is a single mother living in the city of Waukesha with five dependents to care for. It is often hard to make ends meet with five children and only one source of income. Recently, Lisa fell onto hard times. Even working at her full-time job she still did not have enough money to cover an unexpected car repair. For Lisa, applying for a loan through a payday lender was her only option.

Lisa wrote out a personal check at two payday lenders, Security Finance and Speedy Loan. The terms and conditions of the loans were explained to her, and she felt she understood the terms of the loans. She was approved for a loan of $271.79 at Speedy Loan with a finance charge of $55.52 and 14 day APR of 573.54%. A second loan from Security Finance was approved for $200 with a finance charge of $90 for four months at a 165.821% APR. Unfortunately, Lisa was not able to make the scheduled payment and was charged a late fee of $25. Lisa found it hard to pay off her loan because each time she did not make a full payment she would have to pay a finance charge.

Lisa has now paid off both of the payday loans. She clearly states that she would only use a payday lender again in the future “as a last resort.”

Jennifer

Mother of three

Jennifer, a mother of three, lives in the City of Waukesha and is the sole provider for her family. She recently went through a rough financial period and needed extra cash to pay her monthly bills. Jennifer thought she did not have anywhere else to turn to for financial help so her only remaining option was to apply for payday loans with Check ‘n Go. She first turned to a payday lender while living in Oklahoma and continued to seek their services after moving to Wisconsin.

Jennifer secured two loans last fall by writing personal checks from her checking account. She was presented with the terms and conditions of the loans, and understood the terms of the loans at the time. The first loan was taken out on August 15, 2008 and due 14 days later. She took out $295 with a 617.69% APR and paid a finance charge of $64.90. A couple of weeks later, Jennifer took out a second loan on September 18, 2008. The finance charge on the 7-day $400 loan was $88 (or $22 per $100 borrowed) with an interest rate of 1,147.14% APR. Jennifer was caught in a debt trap that required her to often roll over her existing loans every two weeks to pay monthly bills. While she was able to make monthly payments on the finance charges on time, the monthly fees on her loans were $100 a month.

Jennifer was finally able to pay off all of her payday loans. While the payday loans got her through a difficult financial period, Jennifer states that she would only use a payday lender again if she absolutely needed to because of the oppressively high monthly fees that made a difficult financial situation even worse.

Andrea

Single mother, recently lost her job

Andrea, a single mother from Waukesha, encountered hard financial times and applied for a loan from a payday lender. She found herself short on the money needed to pay her monthly bills and was desperate. At the time, she felt she had no other option, but to apply for a loan with Advanced America.

The terms and conditions of the loan were explained to Andrea and she felt that she generally understood the terms of the loan. Andrea secured the loan by writing a personal check for $300. The loan was due in 14 days with at an annual percentage rate of 573.57% and $66 in fees ($22 for each $100 borrowed). Unfortunately, Andrea was not able to pay back the loan on time because she lost her job soon after taking out the loan with Advanced America. She must now pay an additional $66 to stop the payday lender from cashing her original check and to roll over the loan for two more weeks.

Although Andrea has attempted to work with the lender on a payment plan, Advanced America has not been flexible and requires Andrea to make the monthly payment that she cannot afford. She has even asked to make minimum payments of $20 each month, but the lender will only accept the full $66 or nothing at all. This is especially difficult because the $66 pays for interest only and is not applied at all to the principal. In order to pay down the principal, an additional payment would need to be made.

Andrea receives five phone calls a day from the lender demanding a payment. She continues to look for a job. Andrea says that if she found herself in a similar situation in the future, she would never use a payday lender again.

Provided by La Casa de Esperanza, a member of Wisconsinites for Responsible Lending, a coalition spearheaded by Consumer Action.

To share your story on payday lending, use our online complaint form or contact Consumer Action’s hotline at (415) 777-9635 with your complaints and leave a message. Someone will return your call with advice, referrals, and with the opportunity to voice your concerns to lawmakers, regulators, and the media.