By Robert Faturechi / Los Angeles Times
The payday loan industry has found a new and lucrative source of business: the unemployed.
Payday lenders, which typically provide workers with cash advances on their paychecks, are offering the same service to those covered by unemployment insurance.
No job? No problem. A typical unemployed Californian receiving $300 a week in benefits can walk into one of hundreds of storefront operations statewide and walk out with $255 well before that government check arrives -- for a $45 fee. Annualized, that's an interest rate of 459%.
Critics of the practice, which has grown as the jobless rate has increased, say these pricey loans are sending the unemployed into a cycle of debt from which it will be tough to emerge.
Many payday clients pay off their loans and immediately take out another, or borrow from a second lender to pay off the first, and sink ever deeper into debt. Typical customers take out such loans about 10 times a year, by some estimates.
Lenders "market the product to give the illusion of assistance," said Ginna Green, a spokeswoman for the advocacy group Center for Responsible Lending. "But instead of throwing them a life jacket they're throwing them a cinder block."
The industry sees it as a service, providing short-term loans to people who wouldn't stand a chance with a conventional bank.
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