In Oct. 23-29 IssueBy Derek AaronTimes Journal Reporter
JAMESTOWN — Payday lenders are seeing a jump in popularity nationwide, according to economic experts, but to many locals these businesses remain a mystery.
Gary McNabb, owner of Cash Express in Jamestown, and Matt Gosser, owner of Lakewoods Cash Advance in Russell Springs, both say their businesses offers two services, cashing checks, such as insurance, IRS, personal and payroll checks and providing short term loans to people that have a specific need.
Payday loans are short-term loans that are based on a borrowers' personal check that is written to the payday lender.
These businesses in Kentucky cannot charge more than $15 in fees for every $100 borrowed - but that averages to an annual interest rate of about 300 to 400 percent, a potential red flag to some consumers.
For a comparison, yearly credit card rates are generally around 15 percent to 20 percent.
Cash Express has both 14 day and 30 day loans with a fee of $15 per each $100 loaned to pay back along with the loan itself, according to McNabb. He said that the current economic situation had not affected his business in Jamestown as of yet.
"Honestly, I believe it is working in reverse," he said. "People are paying so much more attention to their money now."
He said, recently, he has witnessed a downward trend in the amount of overdraft in banks he's dealt with.
"Our bad debts are up a half a percentage point from a year ago," he said.
At Lakewoods, Gosser said these short term loans can be from 14 days up to 30 days with varying interest depending on the situation.
He said with the holiday season drawing near, he expects borrowers to pick up at his Russell Springs location.
"(Our service) is just for customers that do not have an open line of credit and can't make it to the bank (to borrow the money)," Gosser said.
At Cash Express, McNabb said he knows he has many critics that frown upon businesses like his.
"One fallacy that people believe is that someone can come in and borrow $200 and keep rolling the loan over each month," he said. "In Kentucky, it is illegal to rollover."
He admitted that both the customer and the lender are at risk when dealing with these types pf payday loans.
"We end up losing money if our customer doesn't wisely use and then pay back the loans," McNabb said.
He said his business tried to avoid customers that would bring bad debt with them. He used customers that may have a drug addiction and are just looking for money to purchase more drugs as an example.
"If we think people are on drugs we won't loan them any money," he said. "We have to be financially responsible, as well."
For an example of someone correctly using a business like his, he mentioned a customer, whose payday was still 10 days away, that recently had a relative in Florida to get sick and need financial help.
Through McNabb's business, he was able to get the much-needed money to his relative before his payday came.
"People also use our service if their car breaks down," he said. "At times when people are in a bind."
He said, after conducting a survey several years ago, the average household income for his customers was $53,000.
"Our typical customers include nurses, secretaries, school teachers, lawyers, doctors and judges ... just anybody that needs emergency money."
Numerous identification items, a bank account and proof of an income are needed at most payday lenders.
The Federal Trade Commission released a consumer alert earlier this year to warn against payday loans that could come at a high price if not taken seriously.
A bill was introduced in the state legislature earlier this year that would have reduced the maximum interest rate fee to $13 per every $100 borrowed at payday loan businesses, but the Kentucky House of Representatives later passed an amendment to keep the current interest rate of $15.
In some situations, if a customer cannot repay a loan in two weeks because of dire circumstances, some lending businesses will likely let them make payments on the loan. Each situation is dealt with on an individual basis at most payday lending businesses.
In most cases, if a customer does not contact the lender and does not pay after two weeks, the lender will deposit the customer's pre-written check, even if the money isn't available in their account, thus making it a cold check.