i n . p r i n t: Payday Lending

Too Much Month at the End of the Paycheck: Payday Lending in North Carolina. Frank Hawkins Kenan Institute of Private Enterprise/The Community Reinvestment Association of North Carolina, 46 pages, $10.

by Angela Spivey

ou’ve seen the ads. "Payday advances! Cash when you need it!" In 1999, North Carolina’s payday lenders—businesses that provide two-week cash advances in return for postdated personal checks—loaned more than $535 million and charged more than $80 million in fees. Clearly there’s a need for short-term credit. But the stories in Too Much Month at the End of the Paycheck show that the practices of some payday lenders can get borrowers into real trouble.

For instance, rollovers—charging additional interest or a fee to extend the length of a loan—are illegal in North Carolina. But some lenders get around this rule by technically closing out the first loan and immediately issuing another one. One borrower says, "I’ve been using payday lenders for eight or nine months to pay my bills. I go to two of them every two weeks like clockwork. It is worse than crack. You’ll keep going back...just to get your bills paid." Since the interest rate charged is so high—15 percent—if a borrower takes out several loans in a row, he can end up owing much more than he originally borrowed.

The law authorizing these lenders in North Carolina expires on July 31 unless lawmakers extend it. Too Much Month features photos and interviews with lenders and borrowers designed to spark debate about the law. Michael Stegman, professor of public policy and analysis and director of the Center for Community Capitalism, hopes that by showing the faces behind the statistics, the book will help lawmakers recognize the need to improve the payday lending law. The book also includes a history of consumer lending by George Coclanis, professor and chair of history, and an essay with recommendations by Stegman.

ome states have banned all payday lenders, but Stegman says that solution isn’t necessarily the best one, since families may turn to loan sharks or other more costly forms of credit. But he suggests prohibiting back-to-back loans and requiring financial counseling for frequent users of payday lenders. To enforce such rules, the state would have to examine lenders’ books on a regular basis. That would mean hiring more examiners, since right now there are only two in the state. To inspect each of the state’s 1,000 lenders just once a year, both examiners would have to work more than 10 hours a day, 365 days a year.

Putting tighter controls on payday lending might be costly, but Too Much Month makes it clear that it is worth it. Consumer-protection attorney Bill Whalen writes in the book "People in financial crisis need financial counseling, not a quick fix. Not a loan that is financial cocaine."

Discuss this story.

© 2001 Endeavors, The University of North Carolina at Chapel Hill. All rights reserved.