Quick money with a catch: How payday loans can ruin lives
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CHICAGO – For those who live paycheck to paycheck – or really anyone who needs a loan to get by until that next paycheck – a short-term loan or loans on salary as they are called, may seem like a lifesaver. However, a WGN investigation found that these companies promising quick money came with a big take of crippling interest rates and hundreds of complaints to the Better Business Bureau.
If you look around, there are more payday loan companies than McDonalds. In 2017, borrowers in Illinois took out more than 200,000 payday loans totaling more than $70 million. Every promise to give you money — no credit, no problem.
The lure of easy money has caught a woman, whom WGN calls Jane. She was embarrassed to admit that she was financially desperate and believed she had no one else to turn to for help. Jane has three payday loans.
“I thought it would help me catch up. but I feel like I’m falling behind,” she said. “And I don’t necessarily see a way out of it.”
Jane went online for her short term loans.
Steve Bernas of the Chicago Better Business Bureau described Internet lending as a mole game. One day they are in business another day they disappear. He added that some companies rack up hundreds of complaints, get an “F” rating, change their name and go back to business.
“People are looking online for a way to settle their debt and they are looking for collateral. Guaranteed money, guaranteed loan, it seems so simple. They always say that the people on the other end of the line were very nice to me, it was great to work with them. Of course, they’re either ripping you off or trying to take advantage of you in some way,” he said.
Jane was scammed when a company contacted online promising a loan but wanted the money first to boost her credit rating.
“I ended up paying them $1,000 and then they asked me for even more. I told them I couldn’t. Then they were going to charge a fee to cancel the request. I had already paid $1,000, never got the loan,” she said.
That should have raised a red flag, according to Bernas.
“It’s the harbinger of the scam, as we like to call it, when they ask for a fee up front. They have no money at all. They only prey on people who are looking for short-term loans,” he said.
Jane received a contract with 500Fast Cash. Her monthly payments are just over $1,000, but she will pay over $1,500 in interest. That’s a whopping 356% APR.
“Right now, after making payments of about $400 a month, I still owe about $1,500. It’s totally crazy,” she said.
WGN Investigates called 500Fast Cash and asked to speak with its owner. Instead, we were directed to its webpage. Incredibly, this took a strange turn. We were directed to an Indian tribe, the Modocs, in Oklahoma.
Additionally, a Netflix documentary, “Dirty Money,” traced the Indian tribe’s ties to a race car driver. Scott Tucker tried to hide behind the tribe to avoid state law, but it didn’t work.
Under federal law, the Federal Trade Commission sued 500Fast Cash and a host of other Tucker companies for unfair payday lending practices. A judge fined the company nearly $1.3 billion.
Then came a criminal trial and Tucker was sentenced to 16 years in prison.
Two Indian tribes have repaid $3 million for their part in the scam.
Yet the Modoc Tribe still works and Jane still pays.
Payday loans are considered so troublesome that the BBB will not accredit any company that offers them.
“I’ve seen so many sad stories and it’s usually the people who are short term, they just need a quick fix to get over a bump, get to payday. Again, this won’t get you not on payday. It’s going to put you in the poor house,” Bernas said.
By law, the Illinois Department of Finance and Professional Regulation, which licenses short-term loan companies, has sanctioned only 26 companies in the past five years. According to its records, consumer lenders appear to target those who can least afford a loan, with 61% earning less than $30,000 a year.
“At one point I thought I was going to take out a loan to pay off the other loan with higher interest, but it didn’t work out,” Jane said.
There are laws in the state to reduce the amount of money a borrower can get at one time. However, Bernas said that based on the number of complaints received by the BBB, the laws are not working.
Jane worries that she will never go into debt.
Seventeen states have banned payday loans – Illinois is not one of them. The BBB recommends people look elsewhere for a loan, including asking family, friends, credit unions, or even their boss. The BBB recommends, if possible, setting aside a fund for emergencies.
For more information, visit the Consumer Credit Counseling Service.
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