But today, the single mom owes $4,450 spread across four payday loan companies and her cycle of debt is not likely to stop anytime soon. That's because each company has specific requirements for payment of the loan principal that make payoff prohibitive. In one case, for example, Oliver must pay in $50 increments.
That's a tall order for the special education teacher who's living paycheck to paycheck. Instead, Oliver routinely pays $800 a month on interest alone and continually rolls over the loans.
Blake Gordon/Aurora Photos
"I thought it was going to be a temporary" bandage, says Oliver of Providence Village, Texas, about the payday loans. But "I don't see how it's ever going to get sorted out."
Oliver's experience is far from unique, says Irene Leech, who has long watched the payday loan industry as an associate professor of consumer studies at Virginia Tech and a past president of the Consumer Federation of America.
"They tend to be a very expensive way to borrow money and they tend to suck you into a cycle of debt," Leech says of payday loans. "People often just end up with more problems instead of solving the problem that they had."
These risky loan products are about to get more attention. Under financial reform legislation enacted in July of this year, payday loan providers will be subject to federal regulation for the first time. Consumer advocates say this ought to bring about change for a sector that traditionally operated in the shadows.
These risky loan products are about to get more attention. Under financial reform legislation enacted in July 2010, payday loan providers will be subject to federal regulation for the first time. Consumer advocates say this ought to bring about change for a sector that traditionally operated in the shadows.
Most important, the government will likely start collecting data on the products payday lenders are peddling and that alone could bring an end to some of the industry's shadiest practices, Leech says.
"It's possible that some of the things they've been doing that harm consumers, they might stop doing voluntarily so they don't have to report [any of] it," she says.
But big changes to payday lending will most likely take time. Regulation is expected to come from the new Consumer Financial Protection Bureau. This agency opened its doors July 21, 2011, but Senate Republicans — who are demanding changes to the agency’s structure — have vowed to block the confirmation of any nominee to lead the organization.
Once the agency is fully operational, consumers will have a government agency to turn to for help and guidance. And consumer advocates say they hope to see requirements forcing payday lenders to clarify to consumers the costs and rules associated with the products they're selling.
In addition to facing more regulation, payday lenders may also face more competition: The financial reform law also contains incentives for more mainstream financial institutions to offer low-cost loans that serve as a safer alternative to payday lending.