Missouri Man Pays $50,000 Interest on $2,500 Payday Loan
In 2003, Elliot Clark of Kansas City, Missouri, was desperate. His wife broke her ankle, she needed surgery, her health insurance didn’t cover it, and he couldn’t take out a loan from the bank.
Eventually, he turned to payday loans, taking out five different loans of $500 each—which cost him $50,000 in interest over the years.
“It was hard for me to talk about it without breaking down in tears,” Clark told ABC News. “If you’re a man you take care of your family. If I had another choice, I would have taken it. I wouldn’t have gotten in that situation at that time.”
Clark had to take out new loans to pay for the interest of his old ones, and eventually he and his wife lost their house and their car. He took a range of jobs, from pest control to corrections officer, to pay off the debt, which took years.
“I did this constantly for five and a half years. It took its toll,” Clark said.
Now an activist for stricter payday loan regulations, Clark is calling for a cap of 36 percent on the interest that payday lenders can charge their customers. Some lenders charge as much as 700 percent, according to the Kansas Star.
Earlier this month, Google decided to ban payday loan advertisements on its website, which are often criticized as a trap for the financially desperate. From July 13, Google will no longer accept online ads for loans that are due within 60 days. It also won’t accept ads for loans, within the United States, with an annual percentage rate of 36 percent or higher.
Last month, the Consumer Financial Protection Bureau (CFPB) said it was planning to introduce new regulations for the payday loan market, and plans to hold a hearing in Kansas City in June.
The Bureau’s research has found that four out of five payday loans are rolled over or renewed within two weeks.
“For many borrowers, what starts out as a short-term, emergency loan turns into an unaffordable, long-term debt trap,” the CFPB states on its website.
Community Financial Services Association of America, a national association for payday lenders, has argued that stricter regulations would limit consumer access to loans.
“If you eliminate payday loans, you still have to answer the question, ‘Where will consumers go with their short-term credit needs?’ Those needs don’t just go away,” said Amy Cantu, a spokeswoman for the association.