Payday loans trap consumers

Thinking about a payday loan? Please check out this article on the hazards of on-line payday loans. The author, Herb Weisbaum, is one of my favorite consumer news resources. He writes the ConsumerMan column for MSNBC.

The Weisbaum article focuses on the nastiness of on-line payday loans. Consumers who are desperate for quick cash can get sucked in to horrible deals with on-line payday lenders who often evade regulation.

The article notes a few horror stories that are worth marking. When on-line lenders charge interest rates of 800 percent, the borrower will be so deep underwater so quickly that the borrower can never pay down interest.

On-line lenders often require the borrower to provide social security numbers and bank information and automatic payment from the consumer’s bank account.  I suppose I could write a long and technical explanation about this using flowery legal language/ Not necessary. This is very simple. Don’t do it. It is a trap.

It’s easy for consumers to assume that regulations protect them in these transactions. Truth is that many states have no real regulations on payday loans.

Some states, like Oregon, cap interest rates. But the cap is 36 percent APR, and that does not include origination fees.  Yikes! For those who like things a bit more concrete, let’s do some basic math to show why these are bad deals.

If you borrow $3,000 for one year at 36 percent interest, your monthly payments will be $302.78 on that loan. That, of course, is a new payment on top of all the other obligations like food, rent, auto and the like. Assuming you manage to pay it off without rolling it over, you will have paide a total of $3,616.68. Not a pretty deal, and it gets worse if you don’t get it paid off and have to roll it over.

So here’s how it gets even worse with the on-line payday lenders. Many will set up shop off shore and claim that Oregon laws don’t apply to their loans. So instead of the high rate of 36 percent, they’ll charge 800 percent annual interest.

Here is what a small 800 percent interest loan looks like. A one-month $300 dollar loan adds over $200 per month in interest. And of course that interest payment is on top of the $300. So borrowing $300 for a month at 800 percent annual interest means you will owe a bit more than $500 in a month’s time.

It’s easy to see how people fall deeper down the hole in that situation. Look at this explanation from the Federal Trade Commission on how payday loans work to see how easy it is to get sucked under. The FTC piece is a bit dense, but it also contains suggestions on how to avoid the traps.

This isn’t a new issue. But the Weisbaum article prompted me to think about it again. In these tough economic times, I have no doubt that these loans are tempting. Just say no.

For further information:

Oregon consumer payday loan information (pdf) from the Oregon Department of Consumer and Business Services.

Oregon statutes relating to payday loans (scroll down to ORS 725.600 – 725.630)

Summary of states’ payday lending laws (Author’s note: I haven’t verified that this is accurate or up to date.)

Scam Alert: Oregon vote by mail scam using fake look-alike ballot

Imagine my surprise when I got home Friday night and looked at the mail. I received a “Secret Straw Ballot” from the “Nelson Report” as a “representative of the average voter.”  The enclosure looks like the exact ballot that is not coincidentally being sent to Oregon voters for a special tax election happening right now.

Turns out the “secret straw ballot” was mailed to approximately 50,000 Oregon voters. It was mailed by the leader of the opposition to Ballot Measures 66 and 67, Mark Nelson, as the linked article notes. While Mark Nelson won’t face a fine for sending out fake ballots, Secretary of State Kate Brown admonished him and indicated that her office will tighten regulations in the future.

Most of the focus has been on the ballot itself, but it’s the accompanying card that’s arguably worse. It contains this misleading statement, “The Nelson Report does not advocate the support of any candidate, nor does it advance the affirmative or negative side of any measure.” Mark Nelson leads the ballot measure opposition I’m supposed to believe that the Nelson Report doesn’t advance his objectives? Please.

It’s fabrication to represent the fake ballot as a poll. No pollster worth his or her salt would use a method like this to gather opinion. None would send it to 50,000 Oregon voters for a state wide ballot measure poll. The results would be garbage because of a selected, non-representative sample, a method that may or may not garner a response, a lack of any control over who responds, and an over-large sample size. These inconsistencies provide strong evidence of Nelson’s true intent.

It’s a hotly contested election. A vocal minority of Oregonians rabidly oppose increased taxes of any kind, for any reason. My own take is that our state is falling apart for lack of revenue. I see it everyday in the number of homeless on the street. I feel it with every tuition increase for my son who attends an “affordable” state university. I hear it with each ever-more depressing report of increased foreclosures and food scarcity. So my own take is clear–we need this.

To be fair, I understand the opposition arguments and don’t presume that anyone opposed to the tax increase is “stupid” or “heartless.”  There are people of good will on the other side of this issue. I strongly believe they’re wrong and that they don’t understand the costs and requirements of citizenship, but that doesn’t make the opposition evil.

Still, the opponents–and specifically Mark Nelson–owe us better. So here is a modest plea: How about you run a race on the merits and leave the voter fraud tricks out of it? If only a small percentage of those of us who received the fake ballot confuse it for the real one, a close election is decided on deceit. That’s intolerable.

David Sugerman