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Small loan, big problem.(VIEWPOINT)(online lending)
ANDREA FELTS had money troubles after her divorce. To cover expenses, the high school principal from Albuquerque, N.M., took out a $400 loan from an online lender, which charged her an additional $120 to borrow the money for just 16 days. That's comparable to an annual interest rate of 684 percent.
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Felts didn't have the full $520 to repay at the end of the 16 days, so she rolled over the loan for another $120 in fees. Before she was able to get together enough money to pay of the total, she had rolled it over five times and paid $600 in fees on the $400 loan.
Payday lenders hold a borrower's postdated check or tap directly into his or her bank account to withdraw the money on payday. With most traditional loans, the principal and interest are paid down in regular installments. With a payday loan, the borrower must pay off the whole loan on the next payday. That's often impossible, so those people repeatedly pay hefty fees with nothing going to the principal.
New Mexico allows payday lenders to charge up to 417 percent annual interest. But as Felts' situation shows, rate caps might be ignored by online lenders peddling payday loans. Felts' attorney says she is pursuing a class-action suit in New Mexico.
Consumer protections vary widely by state. Only 15 states ...
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