Consumers say high interest rates charged by payday advance companies can trap people in a vicious spiral, leaving them owing thousands of dollars after borrowing just a few hundred.
Dr. Michael Stegman of the Kenan-Flagler Business School reached a similar conclusion in his book, "Too Much Month at the End of the Paycheck."
"People are not stopping at one. In North Carolina for example, the average was about 6.97 loans a year. In Illinois, an average of 13 loans a year, so that's (more than) one a month. You're never getting out of it," he says.
State lawmakers are looking at a bill that would create tougher regulations. Changes would include lower interest rates, more time to pay back an advance and limits on how many advances you can get.
The North Carolina Check Cashers Association opposes the bill and has taken its case public, arguing that payday advance companies have an undeserved reputation.
"This is a dignified, flexible, responsible alternative to people [instead of] the alternative of bouncing a check, paying a late fee on a credit card or a disconnect fee on a utility," says Steve Grow, president of the North Carolina Check Cashers Association.
Lawmakers are scrambling to get a cash advance bill on the books. The current law allowing these businesses to operate expires at the end of July. The check cashers association hopes legislators extend the current law 45 to 60 days, so they can take time to consider a new law.
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