RIVERSIDE

By Chris Levister

When Leslie Sykes moved her 81 year-old-mother, who suffers from dementia (first stages of Alzheimer's disease), into her Banning home from Alabama last December, doctors told the caregiver to expect the forgetfulness, the fantasies and even the occasional family disagreements over her care.

What she didn't expect however, was the $800 in loans owed to three Huntsville, Alabama "payday" lenders at effective annual interest rates ranging from 200 to 400%.

"She's a former school teacher. After Dad died she insisted on her independence - she was too proud to ask the family for money," said Sykes.

In early 2006 following their father's death Sykes said her mother moved into government subsidized housing for seniors and lived on a small retirement check and a $1092 monthly Social Security benefit.

Sykes says she and her brother frequently sent cash to their mother which they labeled "spending change." "We didn't want her to feel ashamed to ask for money." Once when a family member asked what she bought with the money she told them "an old boyfriend from the war had stolen it." Citing her memory loss family members later found the accumulated cash hidden in a plastic bag stuffed in a shoe," said Sykes.

High-interest “pay-day” lenders are increasingly targeting recipients of Social Security and other government benefits including disability and veterans benefits.

When the elderly woman ran short of money for groceries and medications, says Sykes, she took a friend's advice and signed a small payday loan using her social security as collateral.

"She didn't have the money to repay after two weeks and wound up taking out another payday loan to cover repayment of the original loan. The problem snowballed from there," said Sykes.  

Sykes would not give her mother's name to protect her privacy. She said she first discovered the loans when she noticed repayment, fees and interest from the Social Security electronic deposit to her mother's bank account.

"I was shocked. How could this happen? It was like uncovering a dark secret."

Some say Sykes' mother represents the newest crop of consumers for a fast growing industry - lenders that make high interest short-term small loans - often called "payday" loans that are secured by upcoming paychecks.

Advocates representing the elderly say payday lenders are increasingly targeting recipients of Social Security and other government benefits, including disability and veteran's benefits.

Lenders say they provide a useful service and called news reports claiming they target certain demographics "preposterous".

"Our industry has been accused of 'targeting the military, minorities, women, immigrants, the elderly, the poor, the middle-class and now conservative Christians," said Darrin Anderson, president of the Community Financial Services Association of America which represents over half of the estimated 22,000 payday advance locations.

"Who's left? This is preposterous."

"While critics assign labels to our customers in an attempt to further their political agendas, the fact is that we provide services to a broad cross section of Americans because there is a broad demand for the financial service we provide," said Anderson in a Feb 21, 2008 news release. 

Sykes said when she contacted the Social Security Administration she learned the federal agency has no control over want happens to a recipient's benefits once they are paid out.

Federal law bars the government from sending a recipient's benefits directly to lenders.  But critics point to a gapping loophole that breeds a cozy relationship between lenders and brand name banks.

Some industry critics say fixed income borrowers are "sitting ducks" for payday lenders because they are not only more apt to pay the loan back but a Social Security check is a sure thing every month. 

The U.S. Treasury Department, charged with protecting Social Security payments, confirmed that privacy rules forbid it from monitoring recipient's bank accounts without a formal civil or criminal complaint and warn that payday loans are inappropriate when used as a long-term credit solution for ongoing budget management.

U.S. Department of Housing and Urban Development would not estimate how widespread the practice of payday lending to the elderly and disabled is, however, government reports show payday lenders are clustered near subsidized housing for low income seniors and the disabled, who knowingly or unknowingly sign over their Social Security benefits as collateral for short -term, high interest loans.

"A payday loan may sound like the solution to someone facing unexpected bills, but once you get suckered in it's difficult to escape and your debts quickly snowball," said Sykes.

"People need access to short term emergency loans, but with fair rates and more time to  repay the loan."