Payday loans typically charge high interest rates for short-term loans -- rates that can add up to 600% to 800% in annual percentage rate. A borrower who can't repay the payday loan and interest quickly digs a financial hole when then loan is renewed, which combines the original loan and interest with even more interest payments. The nonprofit Center for Responsible Lending estimates payday loans cost U.S. consumers $3.4 billion each year.
In West Virginia, payday loans are illegal and FFD Cos. agreed -- while denying any wrongdoing -- to refund 576 consumers for fees and interest for payday loans made over the Internet. The settlement closes a lawsuit brought by the state in November.
"Payday loans are not solutions but treacherous traps that can lead to financial ruin for the many West Virginians facing difficult financial circumstances," state Attorney General Darrell McGraw said in a statement.
The settlement involves eight corporations under FFD, with offices in Delaware, Georgia, New Mexico, Nevada, Texas and Utah. Included are FFD Ventures; DFD Ventures; First Fidelity Inc.; FFD Resources, doing business as Cash Supply; FFD Resources II as Web Payday; FFD Resources III as Payday Services; FFD Resources IV as Payday Yes and Paper Check Payday; and Great American Credit Management.
The U.S. Federal Trade Commission describes payday loans as very expensive credit. Federal law requires payday lenders to disclose the loan's cost including the finance charge and annual percentage rate before consumers sign for loans. The FTC recommends consumers look at other types of financing before turning to a payday loan, including:
- A small, short-term from a credit union, small loan company or banks. A community organization may also make small business loans. Shop around for the best interest rate before settling on a loan offer.
- A cash advance on a credit card. While this option may carry a higher interest rate than other cash sources, it still may have lower rates and costs than a payday loan.