CHICAGO — For those living paycheck to paycheck — or really anyone in need of a loan to get by until that next paycheck — a short-term loan or payday loans as they are called, can seem like a life-line. However, a WGN Investigation found those businesses promising quick cash come with a big catch of crippling interest rates and hundreds of complaints with the Better Business Bureau.
If you look around, there are more payday loan companies than there are McDonalds. In 2017, Illinois borrowers took out more than 200,000 payday loans totaling more than $70 million. Each promise to hand you money — no credit, no problem.
The lure of easy money caught one woman, who WGN is calling Jane. She was embarrassed to admit she was financially desperate and believed she had nowhere else to turn for help. Jane has three payday loans.
“I thought these would help me to get caught up. but it seems I’m just getting further behind,” she said. “And I don’t necessarily see a way out of it.”
Jane went online for her short-term loans.
Steve Bernas with Chicago’s Better Business Bureau described online internet loans like playing whack-a-mole. One day they are in business another day they vanish. He added that some companies rack up hundreds of complaints, earn an “F” rating, change names and get back in business.
“People are looking online for a way out of their debt and they’re looking at guaranteed. Guaranteed money, guaranteed loan it makes it sound so simple. They always say the people on the other line were very nice to me, they were great to work with. Of course, either they are scamming you or trying to take advantage of you in some way,” he said.
Jane was scammed when a company reached out online promising a loan but wanted money first to bring up her credit score.
“I ended up paying them $1,000 and then they asked for more yet. I told them I couldn’t. Then they were going to charge a fee to cancel the request. I had already paid $1,000, never got the loan,” she said.
That should have set up a red flag, according to Bernas.
“That’s the tip-off to the rip off as we like to call it where they ask for an advance fee. They have no money at all. They are just preying on the people that are looking for short-term loans,” he said.
Jane did receive a contract with 500Fast Cash. Her monthly payments are just a little over $1,000 dollars, but she’ll pay more than $1,500 in interest. That is a whopping 356% APR.
“Currently after making payments of roughly 400 a month, I still owe about $1500 on it. It’s totally insane,” she said.
WGN Investigates called 500Fast Cash and asked to speak with its owner. Instead, we were directed to its web page. Unbelievably, it took a strange turn. We were directed to an Indian tribe, the Modoc, in Oklahoma.
Furthermore, a Netflix documentary, “Dirty Money”, tracked the ties from the Indian Tribe to a race car driver. Scott Tucker tried to hide behind the tribe to avoid state law, but it didn’t work.
Under federal law, the Federal Trade Commission went after 500Fast Cash and a slew of Tucker’s other businesses for unfair payday lending practices. A judge fined the company nearly $1.3 billion.
Then came a criminal trial and Tucker was sentenced to 16 years in prison.
Two Indian Tribes paid back $3 million for their part in the scam.
Yet, the Modoc Tribe is still operating, and Jane is still paying.
Payday loans are considered so troublesome that the BBB will not accredit any of the businesses offering them.
“I’ve seen so many sad stories and it’s usually people who are short-term they just need a quick fix to get over a hump, get to payday. Again, this is not going to get you to payday. This is going to put you in the poor house,” Bernas said.
By law, the Illinois Department of Finance and Professional Regulations, which licenses short-term loan companies has only disciplined 26 businesses in the last five years. According to its records, consumer lenders appear to target the people who can least afford a loan with 61% earning less than $30,000 a year.
“At one point I thought I was going to take out a loan to pay off the other loan with the higher interest, but it hasn’t worked out like that,” Jane said.
There are laws in the state to reduce the amount of money a borrower can get at one time. However, Bernas said based on the number of complaints the BBB receives, the laws are not working.
Jane fears she may never get out of debt.
Seventeen sates have banned payday loans—Illinois is not one of them. The BBB recommends that people look anywhere else for a loan including asking family, friends, credit unions, or even your boss. The BBB recommends that if possible, set aside a rainy-day fund for emergencies.
For more information, visit the Consumer Credit Counseling Service.