Getting a Payday Loan
To get a payday loan, a person must bring in some ID and fill out a short application. The place I worked at would also ask for their payroll stub, a bill addressed to their current address, and we would verify their employment and home telephone number and make sure that their checking account was open (you can do this by calling their bank and giving them the routing number and checking account number at the bottom of their check). If they cleared, the customer would write a check for the loan amount they wanted plus interest. We would give them cash and hold their check until its due date. If they wanted to extend their loan they would simply come in before the check was due and give us interest for the extension period in cash.
The business I worked at limited the size of each customer's loaned taking their monthly income, subtracting their rent, and dividing by four. A person making $2000/month and paying $500 for an apartment could get about $375, but this didn't stop them from going to five other payday loan places and getting the same amount. The business I worked at was fairly conservative and restrictive.
The legal limit for annual interest on payday loans is 521.43%--which translates to 10% per week. So a person that wants $300 to have a good time over the weekend, will end up paying $30/week until they pay it off. The maximum loan length at my company was 12 weeks. A large portion of our customers would have a loan for the full 12 weeks, which meant they paid 120% of their loan in interest.
The saddest thing I saw while working at a payday loan store was that the customers who got the loans were already poor, and we were helping them become poorer. I remember one young woman who would come in every two weeks to pay the $20 interest on her mom's $100 loan and $20 interest on her $100 loan. Whenever the loan would expire (which was every 12 weeks), she would just get a new loan to pay off the old one. I didn't understand her mentality at first. If she simply saved a little money she could pay off the loans in no time and save $40 per month. Then one day she came in with her young pre-teen cousin. Through the bullet-proof glass I heard the little girl ask, "why don't you pay the whole $100?" to which the young woman condescendingly replied "because I'd rather pay $20 than $100!" She didn't understand that there was only an $80 difference and that interest quickly adds up. Between herself and her mother, they would $1040 interest during the year for that measly $200. The young woman had a part time job and I believe her mom was on Social Security or some other type of limited income.