Friendly sales pitch can't hide payday loans' unfriendly rates

Lenders are trying to shed the stigma of typical payday loans, but they remain a pricey choice with annual percentage rates that can hit 460%. The Postal Service has a possible solution.

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The letter that recently arrived at homes throughout California and other states features a picture of Sylvester Stallone in "Rocky II" training for another shot at greatness.

"As you're making your financial comeback," it says, "we want you to know Rise is here to help."

Specifically, the company is offering a pre-approved loan of $2,600, "which can be deposited into your account as soon as tomorrow."

"Everyone wants to get ahead financially," the letter says. "That's what we're all about. Rise is about getting you the money you need so you can make progress tomorrow."

But don't cue the gonna-fly-now music too quickly.

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The fine print of the letter reveals that the annual percentage rate on that $2,600 loan is 174.54%, and that you'll be required to make 36 biweekly payments of $193.16 each.

In other words, that $2,600 can cost you almost $7,000 in principal and interest.

Welcome to the new-and-not-so-improved world of payday lending, which has adopted more sophisticated sales pitches and branding to lure unwary consumers into loans that can trap them in endless cycles of debt.

Lenders are trying to shed the stigma of typical payday loans, which often are sold in stores in low-income neighborhoods and target people who may lack the financial savvy to understand the hefty interest and fees involved.

Instead, they're operating online, which has the added advantage of evading strict state laws.

California, for example, limits payday loans to $300 and permits the lender to charge an annual percentage rate of up to 460% for a two-week loan.

"We're seeing more and more lenders turning to the Internet," said Joe Ridout, consumer services manager for the advocacy group Consumer Action. "They claim they're trying to help people, but all they're doing is making people's problems worse."

Rise is offered by a Texas company called Think Finance, which until 2010 was known as ThinkCash and offered loans under the name PayDay One.

Ken Rees, chief executive of Think Finance, told me that his company is focusing on "next-generation financial products" that are friendlier to consumers.

"We started out as a payday lender," he said. "But as we evolved, we realized that we could come up with products that are different, that can help people get out of debt."

To its credit, Think Finance does make a modest effort to inform borrowers of the potential pitfalls of short-term loans.

For example, at the very bottom of the fine print on the back of its recent letter for Rise, the company says that "this is an expensive form of credit" and "this service is not intended to provide a solution for longer-term credit or other financial needs."

"Customers with credit difficulties should seek credit counseling," it says.

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