All John Chillingsworth wanted after his divorce in 2010 was for his two daughters, ages 7 and 8, to have a happy Christmas.But the divorce left the account representative with his home in foreclosure, his credit in ruins and no money for gifts. He tried to get aloan for Christmas presents from the credit union he had been a member of since he was 10 years old, but was told that with his tattered credit there was no way.
Seeing no other option, Chillingsworth turned to a payday lender and was able to buy his daughters presents with a $500 loan, to be repaid when his next paycheck arrived, plus about $125 in interest and fees.
Though the loan was supposed to be paid off in two weeks, it carried an annual percentage rate of 651 percent, Chillingsworth said.
When payday came, Chillingsworth was able to make only the minimum payment, which covered the interest but didn't do anything to pay down the principal he used to buy his daughters an American Girl Doll, a Nintendo DS video console, clothes and hair clips.
Months later, he was still making minimum payments and rolling over the balance of his Christmas loan after each two-week cycle, hoping that one day he would have enough cash to wipe out the debt.
Then, Chillingsworth's car needed new tires, and he again turned to a payday loan operator.
Now he was paying about $260 in interest and fees every payday, with little ability to chip away at the principal.
"That started the hole," he said. "I felt like my back was against the wall."
Chillingsworth's story is common among those who have turned to payday lenders for emergency cash.
Annual percentage rates on payday loans commonly run in excess of 500 percent, and while some states cap short-term APRs at about 36 percent, Delaware imposes no limits on what interest rates banks, credit card companies and short-term lenders can charge.
Lending industry group Community Financial Services Association of America reports as many as 19 million households use payday lending each year.
Critics of such lenders say Chillingsworth was sucked into a seemingly endless cycle of debt by an industry that makes its profits not from customers who repay their debts on time and in full, but from borrowers who can afford to pay only the interest and fees every other week. Read full (long) article