Vicious Cycle: Desperate Americans Turn to Advance America

May 18, 2009— -- Laura White, from Mullins, S.C., is 66 years young, and lives on a $575 a month Social Security check.

A few years ago, her old car needed repairs which she couldn't afford and, since she uses the car to take her epileptic daughter to the doctor, White became desperate.

"Things was tough. I needed money so, that's what I had to do," she said. "I wasn't getting enough."

White's solution was one that over a million Americans have turned to: Advance America, the largest payday loan company in the United States.

It seems simple enough: Demonstrate that you have a job or a steady income, and Advance America will loan you money, for a fee of $15 per $100 borrowed.

White borrowed $300 from the company, which made $676 million in revenue in 2008 and has 2,800 U.S. locations. She agreed to pay that loan back -- plus the $45 fee -- as soon as her next Social Security check arrived. The fee was equal to a 163 percent annual interest rate on the loan.

But when White got paid next, she had a problem. As often happens, she once again found it impossible to pay her bills and pay off the loan, so she had to borrow an additional $300 against her next check. And she says she was "hooked."

"We need the money so we go get it," she said. "This little town is hooked in cash advances."

It's a vicious cycle that's continued for over two years. She has not caught up, and in fact, White says she has paid over $1,000 in fees by borrowing and re-paying $300 over and over again.

Jean Ann Fox, from the Consumer Federation of America, says that the industry counts on repeat business like White's.

"Folks just get on a treadmill," she said. "And they keep renewing the loans or paying off one and taking another."

Research from two state finance regulators shows that most people who take out a payday loan are just like White -- they take out another one immediately after or within the next two years.