Published: March 30, 2000
The Poor Pay More
By Emory Curtis
It costs to be poor. When those "Check Cashing" and "Payday
Loans" signs hit you in the eye as you drive down a neighborhood
commercial street, you are in a poor area.
On some commercial streets, there are
more of them than liquor stores and almost as many as churches. Their fees make them profitable so they are
growing.
The "payday advance" industry
which California legalized in 1997 is almost a license to print money.
California has about 1,500 of those outlets now and they do about
a million transactions a month.
Check-cashing outlets will cash a check
(one they deem safe) for ten percent ($10.00 per $100.00) of the check
with a minimum charge of $5.00. That's
a hefty price.
For instance, a low wageworker with
a $300 paycheck takes it to a check-cashing outlet to convert the check-in-hand
to money-in-pocket. The worker
walks in with a $300 check and walks out with $270 in cash.
That's a cost of about 75 cents per
hour worked that week to cash the check. Most of you think that's a bad
bargain and so does the worker.
However, he/she pays it because he
doesn't have a bank account, so banks won't cash it. The same goes for
stores in the area.
One Friday afternoon I was in a neighborhood
shopping center that had a major supermarket and a stand-alone Bank of
America. A check cashing outlet's
mobile office was in the bank's parking with people lined up to get their
checks cashed for ten percent of the check.
If those people had enough money for
a bank account, that ten percent check cashing fee could have been socked
away or used to put food on the table.
Notice that I said, "could have been."
It could be that low wages and a checking
account would have put them into the "payday advance" trap.
If you are caught short and need some money before the next paycheck,
one out is to go to a payday loans outlet.
Those outfits will advances money on
the next paycheck. It brings back
long ago remembrances for me of hangers ons around illegal poker or dice
games in San Antonio, Texas and the San Francisco Bay Area. Suddenly broke gamblers could get money at twenty-five or fifty
cents on a dollar, payable that night or the next week, at the very latest.
The cash till payday businesses have
a charge (service charge, interest, fee, or whatever name it goes by)
that is not quite that high, fifteen dollars per $100 payday advance.
However, they have a better deal than my dice game lenders; they are legal
and the law helps them collect from reluctant payers.
For a two week loan, the advance cost
is an annual rate of 390%. That
rate makes the high cost credit card rate of 22% look like no-interest
money.
Here is how and why that "payday
advance" works and why it is so successful.
You're caught short with only $125.00
in your checking account and you have a $250.00 car insurance bill that
is due now, two weeks before payday.
Your one credit card, a Visa, is maxed out.
Your job requires car insurance with
no excuses and you know you can't get $250 from kith or kin. They live
on the edge too. Your out is that
payday loan they've talked about at work.
You contact Moneymart, a subsidiary
of Dollar Financial Group, Inc., to find out how to get your hands on
$300 (might as well get $50 more, you need it) and they say, "No
problem." Just bring to Moneymart
two blank checks, a recent bank statement, most recent pay stub, a phone
bill (if unlisted), and a valid drivers license.
To get the $300 to tide you over to
the next payday, two weeks hence, you write a post dated (to next payday)
$300.00 check and a separate check for the $45.00 fee or interest or whatever
it is called.
Payday comes and you really can't make
the $300 payment without other checks bouncing. So, back to Moneymart outlet to get an extension to the next payday,
two weeks hence.
To get the extension and keep them
from cashing the $300 check, you again fill out two checks, one for $350
(might as well get an extra $50, just to be safe) and the other for $52.50,
both post dated to the next payday.
Moneymart cashes the first $50.00 check,
destroys the first $300 check and gives you $50 cash. So far, in a little over two weeks you have
gotten your hands on $350 cash and will have paid $97.50 ($45.00 plus
$52.50) for it.
The California legislation allows paycheck
advance outlets to make eight of those "cash until payday" extensions.
As you can see from the numbers in a loan and one extension of that loan,
those businesses are almost money printers.
Both the shylocking check cashing and
pay check advance businesses prey on the poor and very poor. Those too poor to have a checking account have
to pay dearly to cash a check.
A little dollar stumble by them and
the shylockers have another customer.
And more than likely, that customer will return more than a few
more times for some cash before payday. The
average is six or seven per year.
There is a chance that there will be
legislative effort to reign in those payday advance shylocks. It won't be easy. The business is so lucrative that they have very good lobbyists
to protect that income stream. Can
you blame them?
What's the status in your area? Let me know; I'll revisit those shylocks soon.
Let me hear from you: (916)961-1859 (V); (916)961-1596 (FAX); e-mail; eccurtis@hotmail.com. or 8931 Bluff Lane, Fair Oaks, CA 95628.
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