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For some, paydays come a bit sooner thanks to loans

JULIE MUHLSTEIN Herald Columnist

Thankfully, the bills are paid. There's some savings. Beyond that, it's private. Are finances the last secret thing? People will talk divorce and fertility, but not net worth.

Here's a sample of my dirty little money secrets. I once bought disposable diapers with a Visa card. We were probably still paying off diapers when the baby hit kindergarten.

We're smarter budgeters now. I still do a payday countdown, though.

For some, payday can't come soon enough. Payday loans fill holes in wallets that can't wait.

These loans are fairly new on the financial horizon, offered at check-cashing businesses such as Check Masters, Check-X-Change and Moneytree.

Here's how it works. Let's say I get paid next Friday, but need $100 now. At a check-cashing business, I write a check for $100 plus their interest, typically $15 per $100.

I postdate the $115 check, for Feb. 27, and immediately pocket 100 bucks. Next Friday, I deposit my paycheck and the business draws its $115 back.

"We do payday loans between $50 and $500," said Brian Jones, district manager with Moneytree in south Everett. "The minimum qualifications are, you have to be on your job 30 days, make at least $50 a week, have a working home phone and an open and active checking account."

Employment is verified, but there's no credit check.

At Moneytree, the payday date must be within 17 days. Other companies allow a month.

"Traditionally, these businesses have been located in lower-income areas," said Mark Thomson of the state Department of Financial Institutions. "They're spreading into suburbia because of the number of people banks aren't serving."

Someone on the economic fringe, with a history of writing bad checks or no bank account, can't cash a check at a bank, let alone borrow.

Moneytree charges up to 5.9 percent of a check's value to cash it, according to Dennis Bassford, president of Moneytree Inc.

As for payday loans, Thomson said they're a symptom of whopping credit card debt. "People are highly leveraged. They need cash to pay bills," he said.

Years ago, companies like Household Finance or Beneficial might loan $500 with a paid-off car as collateral. Not today, Thomson said.

"Consumer loan companies are no longer in the small-loan business," he said. They're in the second-mortgage business, serving homeowners.

Check-cashing outfits fill a niche. They serve the bankless.

They're allowed in Washington under the Check Cashers and Check Sellers Act, which became law in the early '90s. The statute set payday loan terms; they're limited to $500 for a maximum 31 days at a rate of $15 per $100.

"We don't get many consumer complaints, mainly because the transaction is very clear upfront," Thomson said.

Short-term, they are 15 percent loans. Long-term, the interest rate would be sky-high.

If you carried that $500 loan, allowing it to roll over 12 months in a row, the annual percentage rate would approach 200 percent.

"But the statute doesn't allow it," said Bassford, who is president of the Washington Check Cashers Association.

Who gets in so much hot water that they can't put diapers on a Visa card?

"The clientele varies. Some make $6 an hour; some make $40,000 a year," Jones said. "Cars break down; they need the money now."

Ronald Kaye, a credit consultant with Credit Resources in Edmonds, suspects that most check-cashing clients "are at the low end, the working poor."

His clients come from the high end, sometimes from $500,000 homes and with many maxed-out credit cards. He guides them through strict paper-and-pencil budgeting.

"It's amazing who gets into trouble," Kaye said.

Bassford agreed. "It's a pretty wide spectrum of society that uses our business. Some come only once a year, but we definitely have repeat business."

A worker at another check-cashing business said a punch-card system was being considered. Customers would get a gift certificate for every eight loans.

Thomson cautioned against repeatedly borrowing on your paycheck.

"One of the things we look for is an individual who has rolled (a loan) over month to month to month," he said. "In our view, that's not consistent with the law.

"It's only a short-term solution, if your cash flow is going to change somehow. If it's a long-term cash need, people are better off seeking other options."

When I called Moneytree, I spent some telephone time on hold. I listened as a recorded ad touted "your cash solution."

Not mine.

Ah, payday. I'm glad my check has not been spent.

Herald columnist Julie Muhlstein looks at life in our corner of the world on Sundays and twice a week in the Local News section. You can reach her via e-mail at muhlsteinjulie@heraldnet.com , write to her at The Herald, P.O. Box 930, Everett, WA 98206, or call 425-339-3460.