Payday Loans Can Be A Trap

The huge appeal of payday loans raises the question of alternatives. An obvious one: borrow that $300 from relatives, if the expense is critical, or spend $300 less. In the 12 states that ban payday loans, you can borrow small amounts from traditional consumer finance companies. Ward Scull, who owns a moving company in Newport News, Va., thinks small and midsize companies should offer cash-advance programs to rescue employees trapped by multiple loans. Scull got involved in this issue after one of his workers fell into inescapable debt. He's leading a group that's trying to end payday lending in Virginia.

The most promising solution so far is an effort by credit unions to create low-cost payday products for their members. QuickCash, at Langley Federal Credit Union in Hampton, Va., offers 36-day loans for $100 and up at an annualized rate of 18 percent. Summit Credit Union in Madison, Wis., chose a 29.9 percent line of credit with a $25 annual fee. Both programs just about break even but show how much cheaper payday lending can be. The USA Federal Credit Union in San Diego, for the military and others, loses money on its 18 percent program but sees it as a member service.

The industry's big success story comes from the State Employees' Credit Union in North Carolina. Its payday loan, at 12 percent, is "our most profitable product," says CEO Jim Blaine. Repayments are made automatically from checking accounts.

Starting this week, a new federal law caps the interest rate on payday loans to military families at 36 percent. The goal: to save soldiers from lending abuse. Working families deserve that protection, too. It's proving too easy to tie them up in debt.

Reporter Associate: Temma Ehrenfeld

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