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Wednesday, Aug. 05, 2009

Payday lenders prey on the poorest

Companies are targeting Valley's most vulnerable; best way to deal with issue is consumer education.

We've criticized payday loans many times because the lenders charge exorbitant rates for short-term loans that create a vicious cycle of one loan after another.

Now payday lenders are concentrating their efforts in the poorest neighborhoods in the central San Joaquin Valley to take advantage of the financial vulnerability of families living there.

Payday loans of $300 often carry annual interest rates of 460 percent when the loans are repeated, which typically occurs among those seeking such loans.

As the economy has worsened, the profits of payday lenders have skyrocketed, with more and more consumers turning to this expensive form of borrowing.

The California Budget Project reports that thousands of Californians are being caught up in a chronic and expensive pattern of payday borrowing.

Payday lenders say they provide a necessary service at a reasonable cost. They may provide a service, but they are preying on their customers by collecting the interest rates and fees that are far from reasonable.

There are movements in the California Legislature and nationally to limit the interest rates to 36 percent, and that would help. But the best way to deal with this issue is through consumer education.

Consumers should understand the huge fees they face and consider alternatives. Some credit unions and banks offer small personal loans at much lower interest rates.

Even credit cards with moderate fees and interest rates are less expensive than payday loans, although we're not endorsing putting everyday expenses on a credit card.

In this economy, consumers need to understand the ramifications of their spending habits, and the high cost of so-called easy money.

There's a huge cost that comes with payday loans, and these deals only create more debt for consumers.