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February, 1999
This article was written by the Consumers Union Southwest Regional Office.
Overall FindingsThe majority of the companies surveyed (12 companies) were "sales-leaseback" companies that claim to buy home appliances from their customers and lease them back for a "rental fee." Fast cash advertisement companies that sell advertisements to customers who need cash (rather than to those who need ads) were also popular (8 companies) in these markets. Other companies we spoke with offered "cash back on your check" (3 companies), or Catalog Sales (4 companies) that sell catalog certificates to customers who need quick cash.
Payday Loans Payday loan companies offer "cash back on your check." Customers write a personal check payable to the lender for the amount of cash they need plus a fee. The company holds the check for 14 days. When the term is up customers can pay the full amount owed in cash (the company will rip up the original check in this case), tell the company to cash the check, or pay an additional fee (in cash) to postpone the due date for another 14 days. If the customer pays the fee to renew the loan, the company may ask the customer to re-write a check for the amount due (with a new date) or may simply hold onto the original check for another term.
Sale-Leaseback Sale-leasebacks appear to be a more common type of cash advance loan in Texas. Under a sale-leaseback arrangement, a lender "buys" an item from the borrower, such as an appliance, and "leases" it back for a "rental payment," rather than offering a direct loan with repayment of interest and principal. While most of these companies offer two-week "rental" periods, some assess "rental fees" daily. These companies require customers to bring in the serial numbers, make, and model of various appliances they own that are equal to, or greater than, the value of the cash they borrow. Sales-leaseback companies do not ask to see the appliance being purchased and leased--the item itself never leaves the borrower's home. Nor do the companies appear to require proof that these items have not been "sold" to someone else. Most of the companies we spoke with described the appliances as "collateral" but said they rarely repossess items. Instead they also keep a signed check that they can cash if the borrower doesn't make the "lease" payment. Many of these lease agreements have an "automatic renewal option" built into them that allows customers to renew the lease at the end of the 14 day period for an additional fee. One desperate person wrote to the OCCC after becoming indebted to several sale-leaseback companies. According to his letter, he "sold" his TV and VCR to more than one lender, making payments on at least eight loans (total value of $1853) for five months. He ultimately paid more than $3797 to lease the two appliances back over this period. Some companies allow customers to turn over the title to their car as collateral to get a large amount of cash quick. The lease process is similar to an ordinary leaseback, but the lease payments are very large and sometimes difficult to pay back in a short period. Another borrower who complained to the OCCC turned over her car title to The Check Place in order to qualify for a loan of $2,500. According to the borrower, this sale-leaseback lender charged $33 per hundred every week, with higher daily payments thereafter. After quickly getting in too deep, she wrote to the Consumer Credit Commissioner. "I borrowed $2,500 and was told to write a check for $3,325 to be paid in cash less than a week later. When I was unable to pick up the check, I was told that I would have to pay an additional $300 per day until it was paid or the check would go to the District Attorney."
Cash Back Ad Sales Cash-back ads are a newer variation on the cash advance loan theme. Customers who need cash must purchase an advertisement (1 line per $100 loaned) and pay an ad fee of $33 per hundred. Companies claim that the customer is purchasing a service and they are charging a fee for that service. Even if a customer has nothing to advertise the company will still insist upon an ad purchase, and place the ad in some type of publication. The terms of the loan are similar to other cash advance loan terms (typically 14 days) and the company holds the customer's check as a "security deposit" then "rebates" it to the customer when they repay the loan. Each time a customer wants to renew the loan the company charges an additional ad fee and places another ad in the publication. Customers of Cash Today, for example, buy an advertisement in Today in Texas News, a free publication distributed to Cash Today customers, and pay an ad fee of $33 per $100 loaned in order to get cash. Most customers do not actually try and sell anything for their ad payment. Ads typically contain personal greetings, are sometimes nonsensical and often unsigned. Today in Texas News is not listed alongside the Greensheet in the Yellow Pages under advertising directories or newspapers-the place most people might look if they actually wanted to buy or sell personal goods via a real advertisement. It is, however, listed under "loans."
Catalog Sales Like the cash-back ad sales, catalog companies require a borrower to purchase an item (a certificate) and they charge a fee for that item. Customers who need cash purchase catalog certificates ($20-$30 certificate per $100 loaned) for merchandise that is sold in the company catalog. Customers write a check for the amount of the loan plus the catalog certificate cost (loan fee). Two weeks later the company cashes the check and gives the customer the certificate, at which time they can use the certificates to purchase merchandise from the catalog. The terms of the loans are similar to the other cash advance loan terms, however the catalog sales companies we spoke with did not allow extensions for new customers and did not take applications over the phone. Consumers Union found four companies of the 27 total surveyed that sell catalog certificates. All of these companies are located in the Killeen/Fort Hood region. The companies were identified through OCCC customer complaints. Catalog certificates cost on average $26 per $100 loaned, a slightly lower fee than other payday lenders charge. |
