Tripple-digit interest trapping borrowers

CHICAGO, May 11 (UPI) -- More American are going to payday loan companies to help make ends meet amid rising U.S. gas prices and the subprime mortgage crisis, experts say.

Many middle-class Americans are seeking online payday loans despite their triple-digit interest rates, the Chicago Tribune reported Sunday.

"It's insane. It is growing like wildfire," said Henry Coffey, a stock analyst based in Baltimore who tracks the payday loan industry.

He said one factor in the growth of online loans, which charge as much as 2,000 percent interest, is that they effectively hook borrowers, often forcing people to take second and third loans to cover ballooning debts.

"If you are paying over 1,800 percent interest, you will never get out of that debt," said Elizabeth Schomburg, an official with Family Credit Managing Services, a Rockford, Ill., credit counseling agency.

Coffey said it's difficult for a consumer to tell a legitimate online lender from a shady company operating from an offshore location, where they are beyond state and federal laws.

"There are bandits, cowboys and legitimate operators," Coffey told the newspaper.

Copyright 2008 by United Press International