Cash-strapped consumers are paying “loan-shark” interest rates to some Florida check-cashing businesses that offer payday loans, two advocacy groups charged Tuesday.
Borrowers may wind up paying the equivalent of more than 300 percent interest for those short-term cash advances, according to the Florida Public Interest Research Group and the Consumer Federation of America.
But Pam Smith, manager of Check Cashers of Sarasota, says licensed payday loan businesses provide a legal service that helps workers who are short of cash and who may have credit problems.
“It’s for people who work and are living paycheck to paycheck and need it early,” Smith said. “They’ve got bills due now and the paycheck doesn’t come for two weeks.”
Payday loans are a growing and lucrative line for check-cashing businesses – one that is estimated to be a $1 billion a year industry in the United States.
Florida PIRG and the Consumer Federation of America want state regulators to enforce existing small-loan rate caps and usury laws on the payday lenders. They also called on the Legislature to protect consumers against the worst offenders.
“The payday loan industry is the modern day equivalent of `loan sharking,’ ” said Mark Ferrulo, director of Florida PIRG in Tallahassee. “Payday loans are handcuffing cash-strapped consumers to a debt treadmill from which they may never escape.”
Florida regulators recently cracked down on several payday loan businesses for overcharging. Several states have outlawed payday lending, and others have strict limits on the fees those businesses can charge.
The Florida Check Cashers Association, a trade group that represents 100 licensed companies with 280 locations, said it is working with the state Department of Banking to craft regulations to oversee the industry.
The consumer groups said their recent survey of 19 payday loan businesses in eight Florida cities found 10 that exceeded the 10 percent fee cap allowed by law. They said annual percentage yields on the loans ranged from 261 percent to 573 percent.
A typical payday loan works like this: A consumer writes a personal check for $115 to borrow $100 for up to 14 days. The check casher agrees to hold the check until the consumer’s next payday, when the borrower may either pay the $115 or allow the check casher to present the check to the bank. The $15 finance charge for 14 days works out to an annual rate of 391 percent.
In many cases, the borrower can’t cover the check and seeks to “roll” it over by paying another $15 fee to extend the loan for two weeks. That rollover results in $30 in “interest” on the $100 loan.
Three rollovers works out to $60 in finance charges to borrow $100.
Florida’s check-cashing law, enacted before payday lending came into vogue, permits a maximum of 10 percent on check cashing fees for payday lending as long as the loan is not renewed.
Smith, who has managed Check Cashers on Bee Ridge Road since 1991, said the business follows state law by charging 10 percent for payday loans, plus a $5 service fee for first-time customers. If a borrower can’t make good on his check in 14 days, he can buy the check back with another check and another 10 percent fee.
Smith said she issues about 150 payday loans every month, including many for customers who renew their debts.
“They all know what the cost is,” she said. “Some of them just can’t seem to get ahead and something else always comes up – car payments, insurance, the mortgage.”
Some customers prefer the payday loan over bouncing a check at their bank, which can cost $20 to $30. Some check cashers use that as a selling point to encourage payday loans.
Most of Smith’s customers have bad credit histories that prevent them from borrowing money from a bank, and they probably have charged their credit cards to the limit. Check Cashers and similar businesses do not perform credit checks, but they may require proof of employment, a utility bill to prove local residency and a checking account.
In its survey, PIRG said Check Cashers’ total $15 first-time fee works out to 391 percent annual interest for a 14-day loan.
Another surveyed Sarasota business, Sun Check Cashers on North Tamiami Trail, quoted an $11 fee for a maximum $100 loan until next payday, which works out to 286 percent.
A man who answered the phone at Sun Check Tuesday morning but who would not identify himself said the business doesn’t offer payday loans. But a sign in the front window of the store advertised “Pay Day Loans. Stretch your paycheck.”
The 10-year-old Check Cashers, which is licensed by the state, also offers paycheck and money order cashing and foreign currency exchange. But payday loans have become a big part of its business in the last 2 1/2 years, Smith said.
“It’s grown considerably,” she said. “A lot of people are jumping on the payday loan bandwagon because there’s a lot of money in it.”
She said last year the Sarasota Yellow Pages listed only a handful of check-cashing services. This year there are 17, including some that offer nothing but payday loans.
Indeed, the Consumer Federation estimates that payday lending is a $1 billion a year business that is growing rapidly across the country. Ace Cash Express, an Irving, Texas, check-cashing chain with more than 800 stores, including several in Southwest Florida, brought in $10 million in small-loan revenue in 1997, almost double the prior year’s revenue.
The Florida comptroller has taken action against several such businesses. In June, the office levied a cease-and-desist order against Treasure Coast Cash Inc. of Stuart, which it said was an unlicensed lender making payday loans that cost up to 1,560 percent in annual interest.
A Port St. Lucie company called A Tropical Title Loan Inc. was cited for making 350 small loans at finance charges of 520 percent.
Joe Doyle, chairman of the Florida Check Cashers Association, said his group favors legislation to limit charges on payday loan rollovers. He said a proposal may be presented to the Legislature next year.
The consumer advocacy groups warn that payday lenders have won state laws exempting them from usury laws or small loan interest caps in 19 states and the District of Columbia.