Use payday loan services? This tip might save you $20

It's not an honor I'm proud of, but I'm pretty sure that out of the many writers who contribute to WalletPop, payday loans is my beat.

At least, I wrote about them quite a bit a year ago during a period in which I found myself short of cash and, yes, frequenting payday loan stores. (If you're curious, you can find some of my posts here and here. Oh, and here.)

Anyway, a relative of mine (honest, it's not me) recently told me about a loophole he found that saved him $20 at a payday loan outlet, and I immediately thought, "Boy, this could make an interesting story for WalletPop."

I don't know how it works in payday loan stores everywhere across the country, but last November, in Ohio, the public voted to rein in payday lending to cap the annual interest rate on these short-term loans. So the aforementioned relative of mine took out a loan for $400 and was going to be charged $460. That said, due to changes in the law, he was being charged $40 for the loan.

The extra $20 was to change his $440 money order into cash.

But this information was given to him so quickly that he almost didn't notice it. If it had worked the way it should have, this relative would have been at one teller window, asking for his $400 loan, and then he would have been directed to another teller window, where he would have written out a $460 check, for the money order that was granted (but not given) to him at the first window and for the act of receiving cash.

I know it sounds confusing. It's meant to.

But my relative caught on. "Wait," he said. "Can I just take the money order with me and deposit it at my bank?"

The cashier stammered, glared at him and then finally said, "Sure."

And my relative left the place with a money order for $440, saving $20.

Granted, if anyone reading this doesn't have a checking account -- 28 million Americans don't -- there wouldn't be any recourse. You'd have to pay that extra $20. And as noted, this transferring a money order into a cash probably isn't done in most states, and so this tip won't help everyone. But maybe someone reading this will save a little money.

As it stands, Ohio is working on closing this loophole, so payday loan companies can't charge $20 for cash checking services.

As for me, I admit, my feelings are mixed. Payday lending isn't illegal, and last year, I found it a cheaper option that letting my bank account go into overdraft, where life can really get expensive.

As some bank critics have pointed out, if you have to pay a $27 bank overdraft fee (and my bank's fees are in the $37 range), within two weeks, for a $20 charge that the bank made for you, that means you're being charged an annual percentage rate of 3,520%. That's actually a lot higher than a payday lending service.

So it now sounds like I think payday lending services are swell. I don't.

Ted Saunders, the CEO of Check Smart, a payday lending service in Ohio, has told the press that "the change has been a tremendous blow to the company," and that he has had to cut 100 jobs statewide.

What his company is doing -- charging customers $20 to cash a money order -- isn't illegal. It's clever, and one could argue that he is trying to keep his business from going under, and that he wants to keep his staff employed, and I'm almost sympathetic.

That said, payday lending services arguably hurt as many people as they help (this relative of mine has used them for years and used to take out a payday lending loan to pay another payday lending loan service), and while I may have some measure of sympathy for payday lenders, I have much more for the customers they serve.

Certainly some of the customers are going to be twits who don't know how to manage their money and risky to lend a buck to, let alone a couple hundred, and so even there, I understand the rationale that payday lending services hide behind when they say they need to charge more.

But some of the customers are ultimately going to be good, hardworking people, like single mothers who are working two jobs and trying to make ends meet. And to charge them $20 to cash a money order, or to simply charge $60 for a $400 loan -- well, it still seems borderline evil.

So if you find yourself in the unpleasant position of having to use a payday loan service, and you have the opportunity to leave with a money order instead of having their teller transfer it into cash, you know what to do. Take the money order and run.

Geoff Williams is a freelance journalist and the author of C.C. Pyle's Amazing Foot Race: The True Story of the 1928 Coast-to-Coast Run Across America (Rodale).

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