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Interest grows in payday loan companies populating Poconos

February 5, 2006 - Stroudsburg, Pennsylvania

Advance America, the local payday loan emporium, may be a disastrous financial step backward for most borrowers, consumer advocates warn.

Exploiting a loophole in the state's usury laws, payday loan storefronts are spreading in Pennsylvania despite the fact that they charge more than 400 annual percentage rate on their loans.

For instance, a customer who borrows $100 from Stroudsburg's Advance America store must pay back $119 after 14 days -- $100 for the principal and 19 percent interest. The rates are posted prominently on the wall.

Advance America makes it clear that its high-interest loans are written primarily for customers with bad or no credit.

A customer can get a cash advance loan whether he or she has good or bad credit histories, and even no credit history, a company brochure states.

Gov. Ed Rendell last month pledged to shut down the predatory lenders who are able to sidestep Commonwealth lending laws by fronting for out-of-state banks. The loan company and the bank split the high-interest earnings.

In addition, the Pennsylvania Senate is considering legislation that would crack down on payday lenders by simply applying the state's usury laws to payday loans. State law caps interest rates at 28 percent.

A visit to Advance America at 1240 N. Ninth St. Route 611 in Stroudsburg reveals how the system works. The prospective borrower turns over a post-dated check for the amount to be borrowed. An Advance America representative gives the customer loan documents from BankWest of South Dakota. The out-of-state bank is not bound by Pennsylvania lending laws.

"In effect the customer is giving the lender a bad check because if he had $100 in his account he would not be borrowing the money," said Public Interest Advocate Jim Swoyer.

Advance's Stroudsburg office manager, Lynette Drayton, declined comment and referred questions to the Advance America headquarters in North Carolina. Several calls to the headquarters were not returned.

Critics of Advance and other payday loan companies assert the big money is made when customers roll over their loans. The annual percentage rates can climb to 900 percent as new loans are piled on the old one and the interest due.

Regardless of the warnings and high interest rates prominently displayed on the wall, demand for payday loans remains strong and getting stronger.

Advance has 2,600 locations in 39 states. In 2004, the company had net income of $115 million before taxes on gross business of $570 million. Only two year previous, the company took in half as much.

News Source

The Pocono Record, William Doolittle, Writer for The Pocono Record

Related Stories - Advance America Cash Advance Centers Inc. (NYSE: AEA)

Related Stories - Pennsylvania


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