LUBBOCK, TX (KCBD) - Desperate times call for desperate measures, and in this troubled economy, that's when payday loans come to the rescue. Or do they? NewsChannel 11's Investigative Reporter Nicole Pesecky put payday loans to the test.
We went undercover to find out exactly how payday loans work and how easy it is to get quick cash. NewsChannel 11 Investigates whether payday loans make life easier or if they're setting you up for financial disaster.
It seems like they're on every corner, payday loan stores offering you cash. Rob Norcross, the spokesperson for the Consumer Service Alliance of Texas, says, "It's an important financial option for consumers that have short term or emergency financial needs."
But at what cost? "They are very, very high interest and you end up paying in the 200s, 300s, 400s maybe 500 percent interest," claims Nan Campbell with the BBB.
Amy Pierce says she pays $150 every two weeks to Cash and Go. "I'm in a bind, needing something for the kids, bills due," Amy says. She never expected to fork over hundreds for an initial small loan, with annual rates in the triple digits.
Rob Norcross, the spokesperson for the Consumer Service Alliance of Texas, says credit card or bank overdraft fees will cost you more. "The cost of those other options is all higher than the cost of the short term loan," he said.
We wanted to see just how this works, so we sent two NewsChannel 11 employees to get loans. Our assignments editor got $250 and now owes Check and Go $306.36, his annual percentage rate is 411%.
From there we head to the Cash Store where Blake borrows $300. He now owes the Cash Store $361.35, that's 17% of his loan. His APR of 533% was much higher than our first stop. We did the math on Blake's loan and assuming he made no payments to his principle balance within a year he would pay $1,600 to the Cash Store.
Nan Campbell with the Better Business Bureau says payday loans should be your last resort. "Payday loan is a real enticing way to think that will help you get out of debt, but what you are doing is doubling, tripling maybe quadrupling your debt," Campbell explains.
Amy says these loans are addicting and that's why Texas lawmakers drafted a bill to regulate the industry, governing a cap rate on interest. In the US, 15 states already prohibit these loans, but here in Texas it's virtually unregulated. "I think it's something that may need to be controlled by the law," Campbell tells us.
Norcross says if those laws pass, the stores will have to close their doors, "there are cap provisions in the bills that would virtually eliminate the ability for the companies to make the loans in Texas."
If you're thinking about using payday loans, here are some tips to remember:
If you use payday loans and find yourself in over your head, Norcross says contact the payday loan store. They're willing to work with you free of charge.
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