EAST TEXAS (KYTX) -- Most of us know what it's like to need a few extra buck to get us to payday. And the payday loan industry makes millions advertising itself as a solution to temporary money problems. CBS 19's Field Sutton has been looking into a new option that claims to break the payday loan cycle, for less.
A company called Western Sky Financial is just one of several that's opened up shop as a loan provider. They're Native American-owned companies that can operate outside of normal state and federal laws because of their cultural exemptions.
Here in East Texas, Western Sky is running a commercial...and it sounds like a good deal.
We decided to call Western Sky and find out just how expensive their money really is. I didn't tell them I am a reporter, but I did answer their question honestly.
WS: "What's your monthly income? That'll tell me what you qualify for."
FS: "I make, let's see -- dollars a month."
WS: "So depending on your credit you could possibly qualify for the $2,600 loan. We give you 47 months to pay it back. Of course you don't have to keep it that long. The monthly payments are $294, and the annual percentage rate is 139 percent."
$294 for 47 months comes out to just under $14,000. That's five and a half times the amount of the loan.
"A lot of times when people sign a contract, they don't really read the contract, so they don't realize what they're getting into."
Mechele Mills with the Better Business Bureau tells us, nationwide, they've received 2,000 complaints about Native American loan operations.
"Native American tribes are granted sovereign immunity by the U.S. government so that makes them immune from certain local and state laws," she said.
She says about 35 of the estimated 300 national payday loan companies are outsourcing their loans to companies based on Native American reservations.
Payday loan companies are heavily regulated by state laws, but Mills says the outsourcing gets around that; and that can be bad for you.
We picked a random payday loan shop in Tyler and went in with a hidden camera. An intern and I posed as a couple, looking for some help before payday.
"You'll need to bring in your most recent pay stub, last thirty days of bank transaction history."
They asked for a lot more background than Western Sky.
"How much is your paycheck for usually?"
FS: "It's --."
"Well we would never lend more than what you make."
The state limits payday loan companies to $1,500. This place told us a $1,000 loan would have to be paid off in a month with an extra $200 to $400 due on payback, but that can be re-financed.
"It's not an installment loan so if you only pay me $240, I'm going to charge you another $240 on your next payday because you still owe me $1,000."
When you look at the interest rate Western Sky's money is technically cheaper. But imagine going to the ATM and needing $100. If you go to a bank that's not your bank, they charge you a fee. But stretching your loan out like Western Sky is like getting $100 five dollars at a time at 20 different ATM's...paying the fee every time.
"The interest is just exorbitant and you will have a lot of difficulty in repaying that in a timely manner."
Jerry Woolverton with Texas Bank and Trust recommends at least sitting down with a banker to try and get a better deal.
"Do not just assume that you can't borrow at a better rate," he said.
He recommends opening a checking and savings account somewhere, establishing a relationship with your banker and re-building credit with old-fashioned trust rather than take a risk on a quick pay-off.
"With the economy the way it's been, people are more desperate and they're looking for a way out," Mills said. "And you need to consider, 'is this a way out, or is it just a way to get deeper in debt?'"
The bottom line is, dollar for dollar a loan from companies like Western Sky is cheaper than a payday loan, if you pay it back quickly.
But imagine a pyramid of lenders. The ones with the best rates are at the top. Both these options would be at the bottom. If you don't know what's right for you, ask a financial professional.
