Ryan McFarland

I see them whenever i travel - payday loan centers. The Community Financial Services Association of America (CSFA) estimates 22,000 payday advance locations nationwide. The offer of a paid advertisement from Need Speedy Cash got me thinking about what exactly these things are - and being paid to think makes me actually work on it.

Here’s how they work. You walk into one of these places (or now can do it online) with a recent pay stub. They loan you between $100-$500 with the payment due when you receive your next paycheck (usually a two week term). You write a post dated check for the full amount plus fees and finance charges with the understanding that you’ll come in an d pay off the loan by the term end. They charge between $15 and $30 per hundred dollars borrowed. If you don’t pay they cash the check. You also have the option to “flip” the loan if you can’t pay it off.

Payday loans are not designed to be repaid. Many people (over 90% according to one study) are unable to repay the loaned amount come their next payday. So they go back and pay a second fee to renew for another period. This is typically a $50 charge per payday.

The industry currently handles more than $28 billion annually. “The typical payday borrower pays back $793 for a $325 loan.” So why do these places exist? They seem to be predatory and yet there are are almost three times as many payday loan businesses as there are Starbucks.

The answer is simple. Need. Many working class Americans need just a few hundred dollars more to make it to their next paycheck. Probably living outside of means - but let’s not jump to conclusions. The fact is that typical brick and mortar banks won’t bother loaning you $250 for the next few weeks. No - they have the patience to have you over a barrel for 30 years instead.

While it looks like much of the payday loan industry is built on shameful tactics so is the student loan, mortgage and credit card industries.

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