Volume 2 Number 27
July 4, 2005

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BEWARE OF PAYDAY LOANS  

In need of a quick fix to a cash flow shortage, people may decide to take out a “payday loan.”  But Florida’s Chief Financial Officer Tom Gallagher urges consumers to beware - this type of borrowing can become very expensive, and for some customers, impossible to pay off.  

Predatory lenders often seem legitimate.  However, they target people who can least afford to lose money, namely seniors who are property-rich but cash-poor, inexperienced young borrowers and consumers in dire financial straights.  Junior enlisted service personnel are prime targets in military towns.  

“Our service men and women are experiencing the extraordinary pressure of family separation and deployments, and these kinds of loans may seem like an easy option to help with emergency needs.  Military personnel are more susceptible to the pitches of the loan companies in times of stress,” Gallagher said.

The lenders also know service men and women are getting a steady paycheck – which minimizes the lender’s risk. Lenders also know these men and women are eager to keep their finances in order, which creates an incentive for quick fixes if finances are slipping.  Payday lenders are lined up outside the military bases, as proximity means access. Many have names like Armed Forces Loans or Loans for Military which make them sound legitimate. 

Payday loans are usually small, short-term, and carry a high interest rate. They are called by a variety of names, including cash advance loans, check advance loans, post-dated check loans, and deferred deposit check loans. Money transmitters, doing business as deferred presentment providers, can offer these loans to people who need quick cash, but in Florida, these companies must be registered with the Department of Financial Services, which licenses companies and investigates complaints.

Deferred presentment providers can accept personal checks from customers for the amount they want to borrow, plus 10 percent of the amount loaned and a $5 verification fee.  These are the maximum charges permitted under Florida law.  The payday lender holds the check for no less than seven days, but not more than thirty-one days.  The borrower can redeem the check with cash at any time during that period.   

In addition, recent legislation prohibits borrowers from taking out more than one payday loan at a time, limits payday loans to $500, and requires a 24-hour period between the termination of one loan and the extension of the next.  The “roll-over” of payday loans is no longer permitted, and payday lenders must now allow 60-day grace periods to consumers who can’t pay at the end of their deferment without imposing any additional charges on the borrowers.  To qualify for the grace period, the borrower must make an appointment with a consumer credit counseling agency within seven days of the loan coming due, and must complete the counseling by the end of the grace period.  Both the borrower and the payday lender must agree on the payment plan set up by the consumer credit counseling agency, and the payday lender can not deposit the borrower’s check during the grace period.    

Consumers are urged to review all sources available to them when looking to borrow money, and compare the true cost of each option.  Borrowers should keep in mind that they are entitled to full disclosure of the cost of any loan under the Truth in Lending Act.  Military men and women can seek advice from the Division officer or the Unit’s Command Financial Specialist. If a loan has already been taken out and the financial situation gets worse, help is available from the Navy/Marine Corps Relief Society, Financial Counselors on base, or the base’s Family Support Center.  Use these support groups as a first resource, not a last resort.  

Before taking out a payday loan, call the Department of Financial Services helpline at 1-800-342-2762 to see if the company is licensed in Florida and if any complaints have been filed.
 

Walton County was created in 1824, shortly after Florida became a territory of the United States. The courthouse is in the county seat of DeFuniak Springs.