The Shaft: How Financial Companies Prey on the Poor

PAYDAY LOANS

How it works:
- If you are short on your rent by $200, and you have a job, you can get an advance on your next paycheck. For example, you can get a 15 day $200 loan for a $60 fee.
- You must write a post dated check for the total
  - If you CAN cover the check- you have paid off the loan with 30% interest
  - If you CAN’T cover the check- it will roll over for 14 days with another $60 fee
Remember:as the loan increases, your chances of paying it back decrease
- For example, after 6 months, you might owe $720 in fees plus the original $200 (That’s 360% interest!)
What happens if you can’t escape the cycle?
- 1. Loan companies can send it to a collections agency
- 2. You can be sued; if you lose, you can lose your property, or have your wages garnished
- 3. Loan companies can even report you to the police for writing bad checks

CREDIT CARDS

People with bad credit may be offered two types of “repair” cards
- Secured card:you have to pay $500 to have $500 of available credit
  - Extra fees- annual fees of around $69, an APR of about 20%, late payment and over limit fees of around $30
  - You lend yourself money, and if you don’t pay yourself back, you will be charged excessive fees!
- Unsecured card:typically for “high risk” individuals, starting limit of around $250
  - Extra fees- $95 program fee, $48 annual fee, $29 account set up fee, $7 monthly service fee, $29 over limit fee
  - Before you know it, the card that is supposed to help build credit becomes a $200 dead weight!

RENT-TO-OWN CENTERS

How it works:
- You want to buy a mattress, but it’s too expensive- so you go to a Rent-to-Own center
- Rent-to-Own store will buy a mattress for $500 and sell it for $1,000 retail
- You rent the mattress for $19.95 each week
- In the first 90 days you can purchase the mattress for $1000, after that, you are locked into a 2 year contract- That’s $2,075!
Extra Fees:
- You must pay sales tax which is about $100
- You must pay insurance of about $2 per week, or $208 overall
New total- after your weekly payments and extra fees, you pay $2,383 on a $500 mattress!
What happens if you can’t keep up with your payments?
- The Rent-to-Own center can reclaim your mattress and freeze your payments until you can afford them again
- Or, Rent-to-Own centers will give you as payday loan…for 531% APR

St Joseph County Bridges Out of Poverty