Action: This loan is a payday for the lender

On Tuesday, we took a look at advance fee loan scams, one of a number of predatory lending practices. Today we will look at payday loans. We will also take a look at your rights when applying for a loan.

If you have ever needed some cash to tide you over until the next payday, you may have been tempted, or even used, one of the many "cash until payday" services.

According to the National Consumer Law Center, founded in 1969 at Boston College School of Law to serve as an advocate for low-income consumer justice, since the servicing costs are not much different for small loans than for larger ones, many mainstream lenders no longer make small loans to consumers. This vacuum has been filled by companies offering high-interest loans -- payday loans, cash advance loans, check advance loans, post-dated check loans or deferred deposit check loans -- until the borrower's next paycheck.

How do these loans work? The consumer writes a check payable to the lender for the amount of the loan plus a fee. In other words, these loans are characterized by using post-dated checks to secure the loan. The lender holds the check until the borrower's next payday. Come payday, the borrower can allow the check to be redeemed; pay cash, plus a fee, to redeem it; or roll it over by paying the fee to extend the loan for another two to three weeks. The cost of the loan, either a fee or a percentage of the value of the check, can range from $15 to $50 for every $100 borrowed. Borrowing $100 for two weeks for a $15 fee adds up to an annual percentage rate of 390 percent.

The experts -- the Federal Trade Commission, the National Consumer Law Center and the Better Business Bureau, among others -- advise consumers to avoid payday loans. If you need credit, shop carefully and consider the following alternatives from the Better Business Bureau and Federal Trade Commission:

Consider a small loan from your credit union, small loan company (where you sign a contract with a set interest rate), your employer, family or friends.

Ask for more time to pay your bills. Find out what you will be charged to extend your payments, whether in the form of a late charge, additional finance charge or higher interest rate.

Develop a realistic budget of your daily and monthly expenditures. Start saving for emergencies and unexpected expenses.

Contact your area consumer credit counseling service for help in working out a debt repayment program or developing a budget.

If you absolutely have to use a payday loan, borrow only as much as you can afford to pay with your next paycheck without having to take out another payday loan.

The Equal Credit Opportunity Act gives everyone an equal chance to obtain credit from banks, finance companies, stores, credit card companies, credit unions, real estate brokers who arrange financing, and others regularly offering credit. This doesn't mean that everyone will get credit, of course, since creditors take such factors as income, expenses, debt and credit history into account.

Under this act, creditors may not do the following when you apply for credit:

Discourage you from applying on the basis of sex, marital status, age, race, national origin or because you receive public assistance.

Ask about or consider your sex, race, national origin or religion, although you may be asked to disclose this information voluntarily, apart from religion, if you're applying for a real estate loan.

Ask if you're widowed or divorced (when permitted, only the terms married, unmarried or separated may be used).

Ask about your marital status, unless you are applying for a joint account, relying on your spouse's income, seeking a loan secured by property, or live in a community property state (Florida is not one).

Request information about your spouse, unless your spouse will be allowed to use the account, you are relying on your spouse's income or alimony or child support, or you live in a community property state.

Ask if you have or plan to have children.

Ask if you receive alimony, child support or separate maintenance payments, unless you are first told that you do not have to provide this information if you are not relying on it to get credit; a creditor may ask if you have to pay alimony, child support or separate maintenance payments.

Sources: "Consumer Action Handbook" (GSA Federal Consumer Information Center); Federal Trade Commission (http://www.ftc.gov; (877) 382-4357 (FTC-HELP); Better Business Bureau (http://www.bbb.org); National Consumer Law Center (http://www.nclc.org)

If you have a question for Action, or your attempts to resolve a consumer complaint have failed, write: Times Action, P.O. Box 1121, St. Petersburg, FL 33731, or call your Action number, (727) 893-8171, or, outside of Pinellas, (800) 333-7505, ext. 8171, to leave a recorded request. Names will not be omitted except in unusual circumstances. Letters may be edited for length and clarity.

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