NEWS | FINANCES
PAYDAY LOANS: HOW THE FEES ADD UP Many people cannot pay back the short-term loans as soon as they’d planned. Often, the loan is rolled over for another term or a new loan is taken out from another lender to cover it.
430.18% APR In IDAHO, a common loan interest rate for payday loans is 430.18% APR. This translates to $16.50 in fees for every two-week period the loan is not repaid. LOAN:
TWO WEEKS $116.50 Start with a $100 loan to pay bills. Two weeks later you owe that $100 plus $16.50 in fees.
$100
12 WEEKS $199 Three months later, you owe twice the original amount.
20 WEEKS $265 The national average time to repay a loan is five months.
26 WEEKS $314.50
FEES
LOAN
$100.00
AFTER SIX MONTHS: $314.50
36% APR In MONTANA, fees are capped at 36% APR. A similar plan has been proposed in Idaho. LOAN: AFTER SIX MONTHS:
TWO WEEKS $101.40
12 WEEKS $108.40
20 WEEKS $114
26 WEEKS $118.20
$100 LOAN
$100.00 $118.20
SOURCES: MONEYTREE, INC.; PEW CHARITABLE TRUSTS; UNIVERSITY OF WASHINGTON
CHART BY LISA WAANANEN
“debt trap,” continued... but 36 percent is his favored figure now.) He helped sponsor a similar bill last year, but that effort never made it out of committee. Rep. Elaine Smith, D-Pocatello, who co-sponsored it, says she got pushback from banks who worried they’d get caught up in new regulations. Meanwhile, payday lenders continue to fight caps like this because they say it limits their profits too much to stay in business. “This is a problem, and it’s a problem for the poorest among us,” Heider says. “I can’t imagine borrowing money at 36 percent. I think I’m being more than generous [to lenders].”
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14 INLANDER JANUARY 31, 2013
oneytree CEO Dennis Bassford doesn’t see his industry as a threat to the poor, but as a savior. Short-term loans are designed to help those who don’t qualify for traditional bank loans and who have no safety net of family or friends from whom to borrow, Bassford says. The executive has raised eyebrows with his surly attitude, but also with his philanthropy and his company’s spot on Seattle Business Magazine’s “best companies to work for” list. A call to the Post Falls branch gets you a friendly greeting that ends with, “How can I provide you with outstanding service today?” although all media calls have to go through the corporate office. “It’s a great industry,” Bassford says. “Our customers love the service we provide them. It’s a great business to be in because people value what we do.” To Bassford, there’s no need to wonder about potential impacts of a 36-percent cap in Idaho. Under those rules, he could only charge
borrowers $1.40 every two weeks on a $100 loan. That, he says, would destroy his bottom line and his ability to pay employees or basic expenses. “It’s real easy,” he says. “Everybody who’s licensed in the state of Idaho, like my company, would close our doors and go out of business.” While the industry doesn’t deny the high interest rates it charges, representatives say it’s not fair to measure them by year because these loans were never meant to be used in the longterm. But advocates argue intent is irrelevant. About 12 million adults use payday loans each year, and they are disproportionately poor and not well-educated, according a study by the Pew Charitable Trusts, the nonprofit that runs the Pew Research Center. Of more than 30,000 borrowers surveyed, 85 percent had no college degree and about three-quarters made less than $40,000 a year. When surveyed about what they spent the money on, 69 percent of borrowers cited recurring expenses, like rent and food — not the unexpected, one-time costs the loans are marketed to cover.
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n a way, Joel Rios knew what he was getting himself into. He saw the poster in the payday loan offices he visited in Pocatello showing an interest rate of nearly 400 percent a year. But he says he just didn’t understand what that really meant. The 39-year-old, who moved to southern Idaho from South Texas, found work driving a truck during the potato harvest, but struggled during the offseason. Despite enrolling in unemployment, he says he needed money for rent