Missouri man paid $50,000 in interest after taking out $2,500 in payday loans

?? — Small payday loans are touted as quick, short-term access to cash, but people like Elliott Clark of Kansas City, Missouri, call them “debt traps.”

A retired Marine and disabled, Clark still struggles to talk about the 5-plus years in which he says he struggled to pay $50,000 in interest, which started with $2,500 of those loans, sometimes called “cash advances” or “check loans”.

“It was hard for me to talk about it without bursting into tears,” Clark told ABC News. “If you are a man, you take care of your family. If I had had any other choice, I would have taken it. I would not have found myself in this situation at that time.”

Clark’s road to payday loans began in 2003, when his wife slipped on the ice and broke her ankle, which required surgery to restructure her. His wife, a retail worker, was unable to work for several months, Clark said, and was not eligible for benefits from her employer. With two daughters to help support his college education, Clark couldn’t pay his wife’s medical bills, which he said totaled $26,000. He turned to his family and friends, but they had no money to lend him.

“I tried banks and credit unions. My credit was ‘fair,’ but it wasn’t enough to get a large sum of money to pay the money,” he said, noting his credit score of 610. A credit score over 750 is generally described as “excellent”.

Clark said he eventually took out five $500 loans from local lenders and paid interest every two weeks. Every two weeks, $475 in interest was owed ($95 on each loan) and he often took out new loans to cover old ones.

Eventually, through a range of jobs such as pest control and as a correctional officer, he was able to pay off the debt.

“I did it consistently for five and a half years. It took its toll,” he said. “We ended up losing our house. We lost our car. We finally moved in 2010 and now we’re paying rent.”

Last month, the director of the Consumer Financial Protection Bureau (CFPB) Richard Cordray said the agency continues to “prepare new regulations” in the online personal loan market. On June 2, the CFPB is holding a hearing in Kansas City, Missouri, on small dollar loans.

Some payday lenders would charge up to 700%, depending on the Kansas City Star.

Now that Clark has repaid the loans, he is an activist calling for a cap on the interest rate for payday loans, as first reported in the Kansas City Star. It calls for a cap of 36%.

A national organization for payday lenders, the Community Financial Services Association of America, opposes a cap on payday loan interest rates.

Amy Cantu, spokesperson for the association, points out that the Dodd-Frank Wall Street Reform and Consumer Protection Act prohibits the CFPB from setting a rate cap on payday loans.

She argues that price fixing “almost always results in reduced consumer access to any product.” In states that instituted a 36% rate cap on payday loans and other short-term loans, lenders were “forced to close hundreds of stores, costing thousands of employees their jobs and leaving consumers fewer credit options,” Cantu said.

“In the absence of regulated and licensed lenders, many consumers are turning to unregulated and unlicensed lenders that operate online,” she said. “If you eliminate payday loans, you still have to answer the question, ‘Where will consumers go with their short-term credit needs?’ These needs don’t just disappear.”

Clark is advocating for an interest rate cap for online and in-store payday lenders.

“The payday loan is a debt trap,” Clark told ABC News. “It’s a spiral cycle that brings you back to nothing, like I’ve lost everything.”