November 26, 2006

MASON CITY — Five days until payday can be a long time when the rent is due and you don’t have enough money to pay it.

For some families, payday loan businesses come to the rescue. The check doesn’t bounce and the landlord’s late rent fee is avoided.

But the reality is that a solution like this usually doesn’t have a happy ending, according to financial counselors. Often, the family digs itself deeper and deeper into debt with ever-spiraling payday loans and their accompanying high-interest rates.

“We’re seeing people on a regular basis that are caught in the cycle,” said Kathye Gaines, Mason City branch office manager for Consumer Credit Counseling Service of Northeastern Iowa Inc.

Payday lenders typically require borrowers to have a checking account and a steady income. The individual writes a post-dated check which is held for 14 to 30 days depending on the specific lender.

If the lender deposits the check without sufficient funds in the bank, the individual faces fees and possible jail time for writing a bad check.

This starts the cycle of payday loans. Without the money to make good on the loan, the individual is now forced to renew the loan at a very high interest rate or go to a different lender and take out another loan to pay off the first.

Gaines estimated that counselors in the Mason City office see about 10 people each month who have gotten themselves in over their head with payday loans. That’s about 10 percent of the office’s monthly caseload of approximately 100 clients.

“In order to make this week’s bills, they are borrowing from next week’s money,” Gaines said.

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