139% interest rate?! Crushing quick-loan rates turn $2,500 debt to nearly $14K

[Savonarola]

General Sheridan was right all along:

Susan Tompor: 139% interest rate?! Crushing quick-loan rates turn $2,500 debt to nearly $14K

"The Price is Right" is playing on the TV in the living room of her tiny apartment, but Patricia Guy sees nothing right about the price she's paying for a quick-fix loan shortly after seeing a TV ad for online lender Western Sky.

She will owe $11,412.12 over four years in interest alone after receiving $2,525 in credit. The annual percentage rate is 139.13%.

Since she took out a loan in February, she has already paid more than $1,500. Next month, another $294.46 is set to come out of her credit union account, tapping into her monthly Social Security payment and pension.

"All of that is interest, just interest," said Guy, 62, who once worked as a welder at a General Motors factory in Lansing. She needs an oxygen tank now and has faced many medical bills to deal with her health. The TV ad for Western Sky sounded promising because it talked about a way to pay off her two payday loans.

The Michigan Department of Insurance and Financial Services is moving to stop Western Sky from doing business in the state. A hearing is scheduled for Sept. 24.

Bone-crushing interest rates aren't part of the large-print on TV when many lenders advertise ways to get fast cash up to $10,000. The pitches talk about solving your problems, not creating new ones. But money does not fall from the sky.

Western Sky's online rates are shown after clicking "See Our Rate Table" on its Web site. There's a chart that shows that a loan of $5,075 could have payments of $486.58 each and have 84 payments to pay off the loan.

Take out your calculator. Those 84 payments would add up to more than $40,000.

Michigan's regulators say Western Sky is not properly licensed to make loans, is charging more than the statutory ceiling for its loans and charging 14 times the legal limit for fees. The state says the lender is charging annualized interest rates that can hit more than 340% and loan fees as high as 70% of the loan amount.

The looming legal question is whether state consumer-protection predatory-lending laws apply if a business is operated by a tribe or a member of a tribe from an Indian reservation.

Regulators argue that tribal sovereign immunity doesn't apply to loans made to borrowers in individual states.

Regulators in several other states, including New Hampshire, Georgia, Maryland and Minnesota, have taken action against Western Sky, too. Georgia's state attorney general also took action against California-based Cash Call, a short-term lender and mortgage business that has a relationship with Western Sky.

Western Sky Financial defended its business in a statement, saying that it "abides by all applicable Federal Indian Law and Tribe regulations." Western Sky maintains that the terms of the loans are governed by the laws of the Cheyenne River Sioux Tribe and says it operates on the Cheyenne River Indian Reservation in Timber Lake, S.D.

A spokesperson for the company said its terms are clear and presented up-front. Consumers must complete online applications, review the terms of the loan and electronically sign the agreement, Western Sky said. "It is not possible for a borrower to sign his or her agreement without reading and agreeing to all the terms," a statement from the company said.

Western Sky said many of its borrowers return to use the company's services, and the repeat business is a testament to their satisfaction.

For Guy, the only satisfaction she has now is that maybe the potential regulatory crackdown would somehow help her find a way out of this mess.

Guy digs through the paperwork she has neatly tucked away in the original envelopes. One is a brochure from Cash Call that she received early in the process that said, "Welcome to Cash Call." Another is a seven-page statement titled "Western Sky Consumer Loan Agreement."

The agreement includes a chart for a "Truth In Lending Act" disclosure. But Guy said she only received that statement, which spells out the $11,412.12 in finance charges, months after she obtained the loan. The loan started in February; she said she got that paper in late May.

Guy said she signed up for the loan over the phone. She is not on the Internet and was not able to click on the rate information on Western Sky's Web page.

She said she wasn't told the total potential payments over the phone. Initially, she said, the company declined her loan but then called up the next day and said she'd qualify for $2,600 with a $75 origination fee off the top.

The paperwork noted that "even though the term of the loan is for 48 months, we strongly encourage you to pay off the loan as soon as possible."

Guy said she believes the company waited to mail that letter just long enough so she'd be able to spend all the money and not be able to send back any money quickly. She said she paid off two other payday loans and other bills.

"What kind of a gimmick are you guys running?" she asked the person on the line handling the loan while I sat in her Lansing apartment. "You're just trying to make money off a poor person."

Western Sky says the application time for its loans is less than five minutes, and it advertises that it's not a payday lender. Loans range from $850 to $10,000.

The Web site states: "We are an installment lender and our rates are much lower than most payday lenders."

Not always true in Michigan.

In Michigan, for example, the maximum payday transaction amount allowed is $600 and the top fee on that amount is about $76. The maximum term is 31 days. In Michigan, a consumer can have two check advances outstanding at a given time, but no more.

Some consumers also have complained of collection problems.

The Federal Trade Commission initially alleged in 2011 that Western Sky, its parent Payday Financial and owner Martin Webb had attempted to garnish consumers' wages without a court order.

The FTC later amended the complaint, alleging that it was unfair of the operation to sue consumers in tribal court in South Dakota and obligate the consumer to travel long distances to a court that didn't have jurisdiction over their cases.

The case is pending.

For many cash-strapped consumers, it may be tempting to simply pick up the phone or go online and rush to obtain cash as easily as you can.

As regulators attempt to hash out what's legal and what's not, consumers must pay attention to the warnings. It's prudent to call state regulators in advance to learn of any ongoing complaints with an outfit, too.

"I know one thing: Everything that sounds good, ain't good," Guy said. "This is killing me. It's really killing me knowing that I'm paying this money, and it's not going anywhere but their pocket."

[sbr]

They're just meatheads for needing the loans anyway, who cares?

[Grey Fox]

Indians

[Admiral Yi]

They're just meatheads for needing the loans anyway, who cares?

You don't really care who I originally called meatheads, do you?

[CountDeMoney]

They're just meatheads for needing the loans anyway, who cares?

If only they had a 401k.

[mongers]

They're just meatheads for needing the loans anyway, who cares?

If only they had a 401k.

[sbr]

They're just meatheads for needing the loans anyway, who cares?

You don't really care who I originally called meatheads, do you?

Nope 

[Ed Anger]

The beating of the war drum in their commercials annoy me.

[Sheilbh]

The payday loan companies in this country charge almost 6000% APR

[Josquius]

How these things are legal I'll never know

[Savonarola]

The payday loan companies in this country charge almost 6000% APR

In the US it varies from state to state.  In Florida the maximum is 390%, and the maximum apr and 10% +$5 is the maximum fee.

[Sheilbh]

There's no legal limit over here. Another thing is that there's not limit on roll-over your loan either. So there's a payday loan at a very high rate of interest. The person fails to pay that back, rather than cause them trouble the loan company offers to roll over that figure into another short-term loan. It looks like a better deal than having to go to court but ends up with someone piling up enormously increasing debt.

The Office for Fair Trading's investigating that some companies seem to have trapping people in permanently rolling credit as their business plan. Which I think goes against their license as lenders.

The CofE's getting involved now. The new Archbishop of Canterbury (a former oil executive) is working on plans to provide church buildings and volunteers at low rates to local credit unions and to direct some CofE money to them.

[Valmy]

The payday loan companies in this country charge almost 6000% APR

It is one of the worst institutions around.  Talk about blood suckers, and on the lowest classes of society.

[Admiral Yi]

If we think there's never any good reason to take out a payday loan the proper thing to do is ban them.

[Malthus]

There's no legal limit over here. Another thing is that there's not limit on roll-over your loan either. So there's a payday loan at a very high rate of interest. The person fails to pay that back, rather than cause them trouble the loan company offers to roll over that figure into another short-term loan. It looks like a better deal than having to go to court but ends up with someone piling up enormously increasing debt.

The Office for Fair Trading's investigating that some companies seem to have trapping people in permanently rolling credit as their business plan. Which I think goes against their license as lenders.

The CofE's getting involved now. The new Archbishop of Canterbury (a former oil executive) is working on plans to provide church buildings and volunteers at low rates to local credit unions and to direct some CofE money to them.

Hey, what's wrong with modern-day debt peonage?