BBB: Be Careful About Borrowing From Payday Lenders - CBS News 8 - San Diego, CA News Station - KFMB Channel 8

BBB: Be Careful About Borrowing From Payday Lenders

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Imagine a small loan for under $300 ballooning into a $5,000 debt. That's what one San Diego couple says happened to them, after going online to borrow money from a payday lending company.

Charlotte Young says she never imagined a small loan she took out three years ago would turn into such a huge nightmare.

"At the time, we were in need of cash. It was Christmastime, I wanted to get some extra cash for Christmas," she said.

So she and her husband contacted Interim Cash, an online payday lending company with offices in New York, which Young says made it almost too easy to get money.

"Make a phone call, give them your bank information and they go and put it in your account for you - no questions asked," Charlotte said.

Including processing fees, the Youngs borrowed $279. Interim Cash arragned to deduct a small amount from their checking account each month, but then, "After that I never heard from them again -- there was nothing taken out of my account," Charlotte said.

Young says she'd actually forgotten about the loan until three years later, when out of the blue she got a call from a bill collector.

"And he goes, 'You borrowed some money from us... your loan was $279... you owe us now $5,000,'" Charlotte said.

The company explained the $5,000 total was because of compounding interest.

"The collection industry did a study and found that the average APR , annual interest rate on these loans is 300 percent," BBB President and CEO Sheryl Bilbrey said.

Bilbrey says some payday lenders charge astronomical interest rates - a fact that is often not disclosed upfront.

"They are preying on people who are getting themselves in a little bit of credit trouble and we're seeing a lot of that right now in this economy," she said.

The companies often target members of the military and harass clients by phoning them at home and at work. She advises turning to your bank, credit union or even a family member before considering a payday lender.

Charlotte Young offered some advice: "Don't do it. Don't do it."

News 8 has tried contacting Interim Cash for comment, but has not yet received a response.

Keep in mind that not all payday lenders operate the same way, but consumer experts advise you to read the fine print very carefully before agreeing to any loan arrangement.

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