CLAREMONT -- Joe Masiello doesn't claim to be good with money.
"It burns a hole in my pocket," the 53-year old Masiello said during a recent interview at a coffee shop in Keene.
For a guy living on a $1,013 monthly disability check, that can be a problem. He pays $530 in rent, about $50 in electric and gas, $65 for his cell phone and has a few hundred bucks left over for groceries, gas for his car and monthly medical expenses.
It adds up to a negative balance. And, yet, Masiello has somehow found a way to pay for the clothes he is wearing (Wal-Mart, he says), the watch on his wrist, the New Balance sneakers on his feet and the coffee and pastry he is eating this morning for breakfast.
The answer can be found in nearly every part of New Hampshire, usually tucked away in a strip mall somewhere, advertising "Fast Cash" with no strings attached.
"I have 'Cash Advance,'" Masiello shrugs.
Every month, Masiello borrows $300 from one of the small loan lenders, or 'payday' lenders, where he lives in Keene, only to pay back $360. Virtually nonexistent in New Hampshire prior to 2000, small loan businesses such as Advance America Cash Advance Center and Jifi Loan in Claremont have thrived here over the past six years since the state lifted the interest rate cap on loans. New Hampshire is the only state in New England that has done so, making it a concentrated center of these lending institutions in the Northeast.
Currently there are payday lenders in 38 locations throughout New Hampshire, up from 24 in 2004, according to the New Hampshire Banking Department. The number of loans handed out has doubled in just two years, going from 53,062 in 2003 to 114,656 in 2005. The total amount of money given out last year was $41,447,775.
With no credit checks and just a few questions asked, nearly anyone with a regular source of income and a checking account can walk away with a few hundred extra dollars in their pocket. In exchange for post-dated personal checks that the lender holds until the customer's next payday, people can borrow up to $500 at a time, to be paid back in 30 days.
The catch is that borrowers will pay high interest on those loans, sometimes as much as a 700 percent annual rate, and end up in a cycle that has them spiraling further into the financial black hole that brought them to the lender in the first place.
"Payday loans are a debt trap for poor people," said Jonathan Baird, a Claremont attorney with New Hampshire Legal Assistance. "They take out loans they can never repay, so take out more loans to deal with the past loans."
Traditional lending institutions, like credit unions and banks, are heavily regulated and do not usually offer loans less than $2,500, according to Sherwood Moody, a senior loan officer with Claremont Savings Bank. The Federal Deposit Insurance Corporation keeps a heavy watch over the banks it insures, and if it sees loans being doled out irresponsibly to people whose income doesn't qualify them for the loan amount, the bank could be written up, come under more strict supervision or even closed down.
Payday lenders are not regulated by the FDIC and report directly to the New Hampshire Banking Department. So far, the industry seems to have stayed out of trouble in New Hampshire. Since Jan. 2001, there have been just three complaints filed in the state against payday lenders, according to New Hampshire Banking Commissioner Peter Hildreth.
Payday lenders claim the negative perceptions about them are all wrong. They say the high annual interest rates are misleading, as most loans are paid back in two weeks, and so never accrue much interest. The industry also claims its customer base is firmly middle class, with annual incomes ranging between $25,000 to $40,000, according to Community Financial Services Association of America, a national payday lending trade association. Nearly all customers have high school diplomas and 42 percent own their own homes, CFSA data states.
"Payday customers are very much representative of the middle class of America," CFSA Spokeswoman Lyndsy Medsker said in an e-mail. "One thing that tends to get lost is that all payday lending customers also (have a) steady income and a relationship with a traditional bank."
Critics say the $25,000 to $40,000 range is too broad and that payday customers are more likely to earn near the low end of the scale. A 2005 study published in the Denver University Law Review found the average customer in Colorado to be a 36-year-old single woman, employed as a laborer or office worker and making $28,440 per year. Less than 5 percent of customers made $40,000 or more, with the bulk of customers -- 63 percent -- earning $26,556 or less. People who live off benefits, like Masiello, accounted for about 9 percent, according to the study.
It is the low- to moderate-income customers that lenders are trying to lure through the door, according to Jean Ann Fox of the Consumer Protection Federation of America.
"The folks who can be persuaded to borrow at high interest rates and to borrow money from pay day to pay day tend to be lower income people," Fox said in a telephone interview.
In addition to the attractive, hassle-free promises blaring on television ads and print inserts in free weekly shoppers, payday lenders are notorious for their choice of location. One in Keene is situated right down the street from a homeless shelter. Both payday lending branches in Claremont -- Advance America and Jifi Loan -- sit next to other businesses marketing to lower income customers. The Advance America branch sits next to a RentWay in the K-Mart Shopping Plaza on Washington Street. Jifi Loan also is located next to a rent-to-own business and about 100 feet from Big Lots in the Claremont Shopping Plaza.
Managers at both locations declined to be interviewed for this article.
Advance America, the largest payday lender in New Hampshire with 19 branches (including the one in Claremont), has been Masiello's favorite in Keene for the past three years. He started going there shortly before he was cut off from his rent subsidies through Section 8 Housing Assistance because he broke his lease. Without that extra help, there was no way he could stretch his disability checks to cover his expenses.
Masiello first paid them a visit after he saw a television commercial proclaiming "No credit checks." When he lost his housing assistance, he became a regular customer, supplementing his income with $300 from Advance America.
He claims he is able to pay off the loan with interest on time, every time, but is somewhat vague about how he is able to do it. His handling of other financial obligations may help explain. He doesn't pay his medical bills (Medicare picks up 80 percent and "the rest, they can eat it," he said). Keene's Human Services Department sometimes covers his utility bills and he said he gets food stamps to buy groceries.
In recent years, the New Hampshire legislature has stepped in to offer more control over the payday lending industry. In 2003, the state capped legal small loan amounts at $500, and this past year, the legislature tried to put back interest rate caps, but the bill was tabled when it hit the Senate floor.
Baird, a lobbyist, was involved in that effort. He is not sure why Senate Bill 331 stalled in the legislature this year, but suspects that any effort to cap interest rates could be a challenge in New Hampshire.
"New Hampshire has a history of believing in small government and not having much regulation," he said.
Which leaves the choice to customers, who are expected to exercise some personal responsibility and not spend more money than they have.
Masiello's case manager with the city of Keene, Kelly Darling-Snow, estimates 60 percent of her clients have used or are currently using payday lenders. Though a few have broken the cycle, she said many more have fallen further into debt. Places like Southwestern Community Services offer classes to help people get their finances back on track, but often people need to hit rock bottom before awakening to that reality, said Laurie Jewett, the director of homeless services at SCS.
Darling-Snow said she has tried to convince Masiello time and again to stop using payday lenders, but so far nothing has worked. For one, Masiello is stubborn. Secondly, he doesnąt see anything wrong with it.
"I told her, 'You got me fucking confused with somebody who gives a shit, Kelly,'" Masiello said.