Payday lenders: interest rates as high as 391%

Payday Lenders Go Hunting - Operations Encroach on Banks During Loan Crunch; 'Here, I Feel Respected'

Excerpt:

Most payday loans require a borrower to write a check dated two weeks from the date of the loan. When the loan is due, the lender cashes the check, which includes the full loan amount plus interest. Mr. Dueno paid $55 to get the $500 loan from Advance America.

Payday lenders have been controversial since they emerged in the 1990s from bare-bones check-cashing operations. Outraged by loans carrying interest rates of more than 500%, federal lawmakers approved restrictions in 2007 on the industry's ability to target military members. Some states have forced out payday lenders, claiming they were operating without a license or gouging borrowers with high interest rates.

As a result, payday-loan volume fell to $38.5 billion in 2009, the latest year for which figures are available, a 24% decline since 2007, investment-banking firm Stephens Inc. estimates. The industry had about 20,600 loan offices last year, down 13% from 23,600 in 2007.

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Payday lenders say their interest rates are justified because the loans they make are unsecured and have high default rates. A spokeswoman for Cash America International Inc., the nation's largest publicly traded payday lender by revenue, says the Fort Worth, Texas, company has "always been in the business of meeting the needs of consumers who have nowhere else to turn." Cash America reported record profits for the first nine months of 2010.

Comment: Interesting business. Bottom dwellers of the financial services industry. Cash America International