Loan need online payday quickly

Payday lenders need tighter rein; Debt begets debt, and loan shops

It's rarely a good idea to enter into a high-cost, short-term loan. But desperation has a way of shoving common sense to the side. The people lining up at purveyors of "payday loans" aren't there to establish a line of credit or to chat with the clerks. They are there because they need money - now.

Because they are vulnerable, they are susceptible to high fees. Because of the high fees, they are tempted to borrow again. For many, what began as a short-term problem quickly turns into a long- term nightmare.

"It's a financial spiral into disaster, and it's done to the people who can least afford it," says Gene Forrester, of the Washington Senior Citizens Lobby.

The military isn't fond of these loan shops either. The transient nature of military life and the relatively young age of soldiers make them prime targets. The New York Times recently reported that 26 percent of soldiers or their families had taken out a payday loan.

Washington and Idaho regulate this rapidly growing industry. Washington adopted laws in 1995 and amended them two years ago. Idaho's regulations were adopted in 2003. This year, lawmakers in Olympia are considering more restrictions. Idaho, which does not limit interest rates or fees, should revisit its laws, too.

Washington already has laws that forbid small lenders from charging more than 12 percent annual interest. Payday lenders get around this by charging fees rather than interest.

For instance, a customer writes a postdated check for $345 in exchange for $300 in cash. If the loan isn't repaid, the lender cashes the check. That's $15 per $100 loaned, which is equivalent to an annual interest rate of 391 percent. And if the check bounces, more fees. Some customers borrow again to avoid that. One-third of such borrowers take out at least 10 loans a year, according to state regulators.

Some Washington lawmakers want to lower the allowable interest rate and reduce the maximum loan amount from $700 to $500. Lenders say that will put them out of business and leave their customers prey to loan sharks and illegal online dealers.

The implication is that the industry is doing its customers a favor by providing this service, but it isn't. Because the loans are easy to get, customers fail to take steps that would be financially wiser.

Consumer advocates say people have avenues to explore before heading to a payday loan shop. They can ask their employers for an advance on their pay, seek extensions for overdue bills and avail themselves of free credit counseling.

People, of course, are ultimately responsible for their own financial problems, but states should put a tight rein on businesses that exacerbate the misery by capitalizing on it.