Payday loans popular when money runs low

In El Paso, where 200,000 people live below the poverty line, it costs more to be poor. Strapped for cash, but without good credit or an another alternative, many low-income El Pasoans regularly turn to payday loans.

In exchange for the quick emergency cash they need, they also get exorbitant interest rates, which must be repaid, or additional debt, making it even tougher to escape poverty.

Just ask Valerie Estrada, who, as a single mother of four, a few years ago took out high-interest, two-week loans to pay bills, buy necessities and put food on the table.

"Back then, I only got paid once a month, so I would take out one or two payday loans to buy things that we needed. Then, when I got paid, my whole check would go to paying those loans," Estrada said. "It took a long time to be able to get out of that cycle."

"I would ask for a $365 loan and a $400 loan and, by the time I repaid the two loans at the end of the month, the first one would go up to $450 and the second one would be $500 to $600," she said.

payday-loan fees Estrada describes are not atypical in El Paso. In fact, according to a bill filed last month by state Sen. Eliot Shapleigh, D-El Paso, payday lenders in Texas are using a legal loophole to charge exorbitant interest rates, between 300 percent and 1,100 percent when annualized.

By registering as "credit service organizations," the payday lenders evade Texas' small-loan law, enabling them to charge rates 20 times as costly as a high-interest credit card, Shapleigh's office said. Included in the five bills the state senator filed last month that could regulate the industry is one that would limit payday-loan interest rates to 36 percent annually.

Source
http://www.elpasotimes.com/