Payday loans rise, cost more

Staff and Wire reports

Tennesseans who use payday loans to get cash quickly now can borrow up to $500 from a single lender, but could pay higher fees under a law passed this year by the General Assembly.

The law increased the limit a person can borrow, but now payday loan businesses can charge up to $75 in fees on the maximum $500 loan. Under legislation sponsored by state Sen. Bill Ketron, R-Murfreesboro, and signed into law in May, payday lenders can make loans up to two and a half times as great as the previous $200 loan cap.

"The law hadn't been changed in a decade even though the top reasons for payday loans -- unexpected car repairs and medical bills -- have gone up significantly," said Jabo Cobert, vice president of public and government relations for Check Into Cash, based in Cleveland, Tenn., the nation's third biggest payday lender.

Even with the higher limit, which proponents say should help borrowers from having to go to multiple payday lenders to borrower larger amounts, Cobert said the average loan from Check Into Cash is still $200 to $300.

Kelly Newell, of Joelton, Tenn., said she has used payday loans in the past before the limit went up. She borrowed $200 and ended up repaying the loan six months later along with $360 in fees that had mounted during that period.

While some think increasing the limit can be better, Newell said she believes it will perpetuate the debt cycle.

"I don't think the limit matters," Newell says. "Some people are going to borrow what they'll allow because they think something is going to magically come along, and they won't get into all that debt."

Payday loan businesses have boomed all over the country, even outnumbering Starbucks and Burger King outlets. Check into Cash, founded in 1993, operates more than 1,100 locations in 30 states.

Kathleen Calligan, of the Better Business Bureau of Middle Tennessee, says the trend took off in the '90s all over the country."

"Unfortunately, so many states have pretty much wrapped their arms around this industry and have given them special privileges and considerations," Calligan said. "They don't have to abide by the rules that other financial institutions have to."

Calligan said the industry thrives during bad economic times and is aimed at those who have no or poor credit, the young and those who live on or near military bases.

But Paige Skiba, an assistant professor of law at Vanderbilt University who has researched payday loan limits, said raising the limit actually may be a good thing for borrowers.

"When people are allowed to borrow larger amounts, it actually helps them to repay the loan rather than renewing it a bunch of times and then eventually defaulting," Skiba said.

Still, some lawmakers were bothered by the rate of interest some lenders charged. Sen. Douglas Henry, a Nashville Democrat, said he didn't mind raising the limit that can be borrowed, but said he was concerned about interest rates.

"I don't mind the raise to $500. It's the interest rate that worries me," Henry says. "It's excessive."

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