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Can I use my self-directed IRA to take out a loan?


A self-directed IRA is a versatile financial resource for retirement. Under some circumstances, you can use it to take out a loan. There are some restrictions to keep in mind, or the IRS may decide the account no longer qualifies for deferred taxation. The lenders who make loans to IRAs impose additional requirements.

The loan must be structured as non-recourse debt, in which the lender can seize only the collateral in the event of default. Because the lender is limited in recovery options, the interest rate may be higher than it would have been for a recourse loan. The down payment required is generally higher as well and comes from cash already in the IRA. Some cash, typically 10% of the loan, may be required to remain in the IRA as an emergency fund. Lenders also look at the property’s ability to pay its own monthly expenses, making it less likely to end up in default.

The loan cannot involve a disqualified person. This includes the account holder’s spouse, ancestors, lineal descendants or the spouses of any lineal descendants. For example: Fred holds a self-directed IRA. He wants to use the IRA to buy a small house for his daughter to live in. Someday, when his daughter’s family is too big for the house, he plans to move into it himself. He has enough cash to put down 40%, and the IRA generates enough income to pay the mortgage. This is a prohibited transaction for two reasons: he cannot use the IRA funds for either his disqualified-person daughter or his own future use. Fred can instead buy the house with its mortgage and rent to a non-disqualified person such as his brother-in-law.

An unfortunate consequence of a loan within a self-directed IRA is that an “unrelated business income tax” kicks in when a leveraged asset generates income that would have been taxable if not in an IRA. Be sure to check with an accountant about it.


Are Village Officials in Summit misusing taxpayer dollars?

CHICAGO (FOX 32 News & Better Government Assoc.) –

If you find yourself needing a loan, you’d probably go to a bank.

However, Village Officials in Southwest Suburban Summit found another way to get some fast cash — from taxpayers.

FOX 32 News and the Better Government Association found the top Village Administrator in Summit gave himself a cash advance on his salary, then abruptly resigned after we started asking questions about it.

FOX 32’s Dane Placko asked Summit Mayor Joseph Strzelczyk, “What did you know about these loans?”

He responded, “Talk to our attorney, and he makes a heck of a lot more money probably than you or I do.”

Strzelczyk has been Mayor of Summit for nearly two decades. His brother was Mayor before him and his brother’s son, Chet Strzelczyk, served as Summit’s Village Administrator making about $85,000 a year — until he suddenly resigned last week.

So, why did the Mayor’s nephew quit?

It started with a phone call from the Better Government Association asking whether Strzelczyk and others had received cash advances on their salary.

“He denied that he had gotten anything, or that any staff members had gotten anything,” said Bob Herguth of the BGA.

So, Herguth filed a Freedom of Information request with the village.

“And lo and behold, the Village Administrator, Chet, had indeed received a loan, as it was termed, on village documents,” Herguth said.

In 2013, Strzelczyk wrote up an informal loan document giving himself a cash advance of $2,800 on his salary — to be paid back at $200 a week through the remainder of the year.

Strzelczyk signed as the borrower and had his assistant sign as the lender.

“Apparently it was interest free. Apparently the village board did not know about it. And apparently the village board should have known about it and approved it. You can’t just unilaterally give yourself a loan with taxpayer money. And that’s what it appears occurred here,” Herguth added.

But Strzelczyk wasn’t the only Village Official getting a payday loan at the taxpayer’s expense.

“I hope it was okay because it wasn’t anything I thought I was doing wrong,” said Summit Village Trustee Tyrone Modiest.

Modiest received two separate salary advances of $3,000 each. Again, Strzelczyk signed the loan forms, but this time as the lender.

“Well I did this because I was trying to get a refinance and get a home modification for my house and stuff like that,” said Modiest.

Placko responded, “So you asked the Village Administrator?”

“I needed somebody to get out of debt, you know,” Modiest added.

Last week, the Village Board held a special meeting and accepted Strzelczyk’s resignation, with his Uncle — the Mayor — reading the letter.

“Well as I said, talk to the attorney,” Strzelczyk reiterated.

Placko responded, “Did you know? Did you approve it? You’re the mayor.”

“For the third time you asked me and the third time I told you talk to our attorney,” Strzelczyk added.

Later, a spokesman for the Mayor released the following statement:

“I have ordered an audit to accurately identify the extent of this practice under the former village manager… I don’t believe the intent was to harm the public’s interests but rather to help people… Clearly the practice is wrong.”

“Times are tough. We don’t begrudge people that. I understand that. But taxpayers are not a bank. You work for the taxpayers. Their money is not your money,” Herguth said.

It appears both Strzelczyk and Modiest paid back their loans. FOX 32 also learned the Village of Summit gave another type of loan to Trustee Steve Memishi — allowing him to use the village’s health insurance if he paid for it.

Memishi fell behind on the payments, and now owes summit taxpayers more than $17,000.


Payday loan companies in Channel 5 debt debate snub | UK | News …

“They all declined,” said a spokeswoman on the eve of the show, as it emerged British families now owe more than at any time in history.

The nation’s spiralling personal debt mountain is £1.4trillion, an average of £54,000 for every household in Britain.

More than 2.5 million households spend more on bills each month than they earn. Even taking out mortgages, the average family owes more than £8,000.

Politicians and representatives from credit card companies will join tomorrow night’s The Big “Can’t Pay” Debt Debate: Live. The show will also feature contributions from outrageously opinionated Katie Hopkins and former Celebrity Big Brother contestant and writer Liz Jones, who has spoken openly about her own debts.

Payday loan companies have been accused of preying on the poor and adding to the debt crisis.

Their high interest rates have drawn widespread condemnation. Some short-term loans are levied at 5,000 per cent a year.

Former Dragon’s Den investor and multi-millionaire businessman Theo Paphitis last week called for the Government to take action against the companies. He told a BBC documentary: “If I were David Cameron, I would ban them.”

The Channel 5 show follows two earlier live debates, one on Britain’s benefits culture and another on immigration. Both made for compelling and volatile viewing.

A Channel 5 spokeswoman said: “We will look at whose fault it is. Is it the credit card companies and banks who encourage us to spend?

“The payday loan firms who’ve cashed in on the recession?

“Or is it down to the people who get themselves in debt?”

The Big “Can’t Pay” Debt Debate: Live is on Channel 5 tomorrow at 10pm.


Cash-strapped Egyptian clubs do brisk business in transfer window

Despite being indebted and lacking solid financial backing most Egyptian Premier League clubs were active in the January transfer market.

Clubs felt the need to bring in reinforcements after the opening stage of the new season that began in December after last season was cancelled following president Mohamed Morsi’s ouster in July 2013.

But most clubs signed unattached players on free transfers.

Despite suffering a severe financial predicament that saw some key players opt to leave the club for free, Zamalek still managed to sign free agents Omar Gamal and Dominique da Silva.

Former Egypt international Gamal – who spent eight years at his boyhood club Ismaily – joined on a free transfer following a six-month loan spell at Libya’s Ittihad Tripoli.

Mauritanian marksman Da Silva became the only foreigner in Zamalek’s squad after joining for free after he became unsettled at arch-rivals Ahly, who released him by mutual consent earlier in January.

The newly-signed duo came to replace two integral members of Zamalek’s roster: midfield attacking pair Mahmoud ‘Shikabala’ Abdel-Razek and Ahmed Eid Abdel-Malek.

Eid signed a six-month loan move with Libya’s Ahly Benghazi, while Shikabala – absent from training for more than a month – left for Sporting Lisbon in a deal worth 250,000 euros.

Ahly, renowned for their financial muscle, were also unable to splash the cash in the transfer window.

Following a dismal Club World Cup campaign – which suggested Ahly were suffering from the absence of Mohamed Abou-Treika, Mohamed Nagy ‘Gedo’ and Ahmed Abdel-Zaher in the attacking department – the Reds were also cautious in the market.

Shoring up their frontline, Ahly retrieved Gedo from Hull City, who had the option of extending his deal in England, and signed Egypt forward Ahmed Raouf from Ittihad Libya in a swap deal involving Abdel-Zaher.

The Cairo giants took the opportunity to ditch Abdel-Zaher – who made the infamous four-finger ‘Rabaa’ sign during a match earlier this season – and sign Raouf instead.

Ahly also released understudy keeper Mahmoud Abou El-Seoud, who had played little first-team football over the past two seasons, sending him to newly-promoted outfit Qanah on a six-month loan deal.

Wadi Degla, owned by wealthy businessman Maged Samy, signed two former prominent names on free transfers: Essam El-Hadary and Mohamed Abdel-Wahed.

Ex-Egypt first-choice goalie El-Hadary completed his move as a free agent after his contract with Sudanese side Merreikh expired last year, while midfielder Abdel-Wahed returned to his old team after terminating his contract with Ghazl El-Mahalla.

Similarly, Haras El-Hodoud landed ex-Zamalek star Gamal Hamza for free after the flamboyant forward ended an unsuccessful spell at Georgia’s Zugdidi, where he made just two appearances.

Cameroonian striker Edet Otobong also returned to the Egyptian league on an 18-month deal with Masr El-Maqassa after rescinding his contract with Moroccan side Kawkab Marrakech.

Talented Moroccan forward Omar Najdi returned for another stint at Maqassa, but the details of his contract remain undisclosed.

Abdallah El-Shahat, among a host of players who had to give up delayed payments and part ways with their respective sides, sealed a loan move to Smouha.

ENPPI released two of their young players to launch careers on the other side of the Mediterranean. Egypt midfielder and African Youth Championship 2013 player of the tournament Salah Gomaa joined Portugal’s Nacional Madeira on an 18-month loan and his younger brother Abdallah signed an 18-month loan deal with German second division side FC Union de Berlin.

(For more sports news and updates, follow Ahram Online Sports on Twitter at ;@AO_Sports ;and on Facebook at ;AhramOnlineSports.)


Escaping the Payday Loan Cycle – The Simple Dollar

I had a long conversation with a reader whose brother seemed to be caught in an endless cycle of payday loans.

He works about thirty hours a week earning about minimum wage at a convenience store. About two years ago, his car broke down and in order to get it back on the road very quickly, he took out a payday loan.

The problem, of course, is that the loan he took out – say, $200 – charged a significant fee for the service. The average payday loan charges somewhere around $50 in fees, according to this article, which also outlines habitual payday loan practices:

The Consumer Financial Protection Bureau found that the average consumer took out 11 loans during a 12-month period, paying a total of $574 in fees — not including loan principal.

So, let’s take a look at the brother in question. He takes out a $200 loan and, after all of the fees and interest are paid, let’s say he’s on the hook for $240.

Now, his weekly check for his minimum wage job at thirty hours a week adds up to about $200 a week. If he gets paid on Friday and takes out that loan on Tuesday, he’s in a bind. Let’s say he’s agreed to pay half of the total money this week and the other half next week.

So, he’s got his car fixed on Tuesday, but on Friday, he’s only keeping $80 of his paycheck, which has to last him the following week. After that week, on Friday, he gets another paycheck, but he can only keep $80 of that check, which again has to last until the following Friday, at which point he’s free of the loan.

In other words, our friend here has to go through a seventeen day period where he’s only bringing in $160. If it’s perfectly timed, he’s not going to have to be late on any bills.

But let’s say that seventeen day period crosses the first of the month, meaning he’s going to be late on rent? Or, let’s say it crosses the due date for his electricity bill?

In both cases, he’s probably getting hit with a late fee, meaning the burden of his bills is even steeper.

He’s also likely not in a position to explore other forms of credit due to a poor or very short credit report.

His other option? Another payday loan. It’s a vicious cycle that’s very hard to escape from.

So, what can he do?

The first step is to borrow less each time you borrow money. Your goal shouldn’t be to break free immediately – that’s essentially impossible. The goal should be to borrow less each time you return.

So, let’s say, instead of borrowing $200 the next time, he finds a way to borrow only $180. At the same fee rates, that adds up to $36 in fees, bringing his total to only $216 rather than $240. If he lives the same way during the following weeks, the next loan can go down by $56 – the $36 saved on that loan plus the $20 saved as he did before. Suddenly, his next loan is $124 rather than $180.

That’s a perfect situation, of course, but even if he can just drop the amount he borrows by $20 per loan, he’s going to escape the cycle before too long.

What this does is it turns the focus on the here and now. Can you find a way to spend $20 over the next couple of weeks? If you can, then you can borrow $20 less the next time you’re in a tight situation. That puts things in much easier terms to handle than trying to solve the big problem all at once.

The second step is to swallow a little pride. Use community resources that are meant for people in these kinds of tight situations. People who are struggling like this are the reason that food pantries exist. They’re why soup kitchens exist, too.

Some people have negative views on those resources, but they’re out there for a reason. A lot of people have used them as a helping hand when they’re in a very tough financial spot.

If some food from the food pantry and a meal from the soup kitchen can save you the $20 you need to lower your next loan, then it’s a move you need to make.

The final step is to put some cash in the bank for emergencies once the loan is gone. You’ve been surviving on less than your paycheck for a while to be able to pay back the loan, so keep doing it for a while longer. Put part of your pay into a savings account and just leave it there until the next emergency strikes.

When that emergency does happen, you don’t have to head to the payday lender. Instead, you can head to the bank, withdraw the cash you’ve been saving, and use it to deal with the situation.

This is an emergency fund, and it’s a vital tool for anyone to have.

Those three steps are the path out to any cycle of debt, but they work particularly well for those earning very little and finding themselves caught in a payday loan cycle.

Good luck.


Cash Lady payday loan ad fronted by Kerry Katona banned for being irresponsible


‘Irresponsible’ Kerry Katona payday loan ad banned for encouraging debt to fund celebrity-style lifestyle

By Tara Evans

PUBLISHED: 06:12 EST, 8 May 2013 | UPDATED: 03:59 EST, 9 May 2013

A TV advertising campaign for payday loans fronted by former bankrupt Kerry Katona has been banned for irresponsibly suggesting that debt could help fund a celebrity-style lifestyle.

The former pop singer and reality TV star, who was declared bankrupt in 2008 for unpaid taxes, referred to her ‘money troubles’ in the ad for Cash Lady.

In the ad she said: ‘We’ve all had money troubles at some point, I know I have. You could see your bank and fill in loads of forms, but is there an easier way to get a loan… So if you need extra cash go to Fast cash for fast lives.’

Money troubles: The Advertising Standards Authority has banned the Cash Lady ad, fronted by Kerry Katona, for being irresponsible.

PDB UK Ltd, which trades under the name Cash Lady, offers loans of up to 300 a month with an annual percentage rate of 2,760 per cent.

Payday loans are designed to provide a short-term solution to financial difficulty as a last resort – however, debt charities have warned that they trap customers into a spiral of debt.

The ad attracted 29 complaints and the Advertising Standards Authority (ASA) said it was irresponsible because it focused on Katona’s financial problems and encouraged people in similar situations to borrow money.


Two payday loan firms surrender credit licenses and three more could be shut down as OFT ramps up action against lenders Payday lenders failing to check borrowers can afford loans and won’t even stick to their own rules, says Citizens Advice Credit Union push to force out payday lenders with landmark expansion that will see local co-operatives join forces How to get out of debt: Your ten-step plan to getting your finances back under control

It said that the ad made ‘no reference to the fact that these loans were intended for short-term stop gaps between pay day and were not intended as a more immediate solution for more serious financial problems.’

Cash Lady said Katona was selected as its ‘face’ because she had experienced money troubles in the past and their customers would be able to relate to her.

It said its loans were limited to 300 and were therefore aimed at those experiencing relatively low-level short-term financial difficulties with a need to bridge a gap between paydays.

Banned: The ASA said that the ad must not run again in its current form.

However the ASA said references to Katona’s financial problems within the ad ‘had the potential to encourage vulnerable viewers with financial problems and/or restricted credit from seeking to resolve them through the payday loan service’ and concluded that the ad was therefore irresponsible.

It said some viewers with restricted credit may have found the product in the ad particularly attractive because of their identification with Katona and the references to her own past financial problems.

The ASA also found that the APR was not more prominent than the other information which triggered its requirement in the ad, therefore breaching the code.

It ruled: ‘The ad should not appear in its current form. We told Cash Lady to take care with the overall presentation of information of its loans.’

Money matters: Kerry Katona arrives as a guest in the Celebrity Big Brother House at Elstree Studios on August 2011.

When the campaign was launched earlier this year Labour MP Stella Creasy said it was ‘sad’ to see someone who has experienced the ‘misery’ of debt first hand was publicising a company which she claimed charged an interest rate of 2670 per cent.

Creasy, who has long campaigned against pay day loan firms, said at the time: ‘Behind the glossy celebrity endorsement, the thing Kerry doesn’t say is that this firm charges an interest rate of 2670 per cent.

‘Little wonder with rates like these so many women get into problems borrowing from payday lenders, with debt charities reporting a surge in the number coming to them for help.

‘That’s why it’s sad to see someone who knows first-hand the misery of being in debt encouraging others to use legal loan sharks rather than credit unions when they need a loan.

‘Household names who see a short term cash boost for their own bank balances advertising these firms risk promoting companies who are doing long term damage to the finances of millions of British families.

‘That’s why we need action now to cap what these companies can charge to help the women struggling to make ends meet in 2013.’


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Keep mitts off law reforming payday loans

Published: Thursday, February 28, 2013, 12:01 a.m.

The other day I needed some cash and went to the only ATM I could find. I took out $100 and got charged $3. Sort of an expensive way to access your own money, but the big boys at Chase have to get their slice of our pie.

It got me thinking about the continuing saga of the ways the rich have manipulated our political system to make it easier for them to steal from the poor. In our state, payday loans once created a billion dollar stream of funding, from people in difficult straits, to payday loan kings like MoneyTree. That was before 2010, when our legislature, led by then-Representative and current state Sen. Sharon Nelson, D-Maury Island, completely reformed the payday loan law. They balanced out the deal between the financial companies who provided payday loans and the people who needed them. It became much less likely that the payday loan companies would pile one loan on another, using the second one to repay the first and the third to repay the second, all of which meant more money for the company and more debt for the borrower.

One happy outcome of this is that the number of payday loans decreased significantly from over 3,250,000 in 2009 to 855,000 in 2011. The amount of money tied up in these loans dropped from over $1.3 billion to $300 million. At 15 percent interest, that meant a $150 million loss to the payday loan industry … and a $150 million gain for the folks who took out payday loans.

And it’s not like you can’t get a payday loan anymore. Sixty-eight companies had 256 locations around the state in 2011, two years after the reform bill passed. If you take out a payday loan for $700 for six months, you would end up paying back $914. That includes 15 percent interest and a loan origination fee of $95. On an annual basis, that all adds up to a 35 percent interest rate. Lots of money still there for MoneyTree!

But apparently not enough. So this year the money lenders have connived to legally extort poor people by proposing a new pathway for companies like MoneyTree. Under this new bill, if you take out a $700 loan for six months, you pay 36 percent interest, and you pay a loan origination fee of $105, and you pay a monthly maintenance fee of $52.50 a month. When you are done paying off your loan, you have doubled MoneyTree’s money — you borrowed $700 and you paid back almost $1,400. On an annual basis, your interest rate is 192 percent!

The state Senate approved this proposal for legal extortion, by a vote of 30 to 18. It helps to follow the money. Dennis Bassford is the CEO of MoneyTree. He lives in a multimillion-dollar mansion hidden in a private forest on Mercer Island. I wonder how he got all that money?! But now he wants more. So last year he and his brother Dave and sister-in-law Sara gave $5,000 to Sen. Don Benton, R-Vancouver. That $5,000 meant something, as Benton won with 50.07 percent of the vote, just 78 more votes than his opponent! Benton is vice chair of the Financial Institutions Committee and helped to shepherd this bill through the Senate.

Sen. Steve Hobbs, D-Lake Stevens, is the chair of the Financial Institutions Committee. He not only voted for this bill, he enabled its passage out of committee. Along with Hobbs, Snohomish County Sens. Barbara Bailey-R, and Kirk Pearson-R, voted for this bill for MoneyTree. On the Democratic side, Snohomish County Senators Maralyn Chase, Nick Harper, Rosemary McAuliffe, and Paull Shin all voted to stop MoneyTree from raiding the pocketbooks of desperate people.

If there are any heroes in this sordid story of the Legislature taking from the poor and giving to the rich, it is Sen. Sharon Nelson. She sponsored the reform bill back in 2009, and she adamantly opposed the take-backs envisioned this year. She knows no action means that Dennis Bassford will still get his 35 percent interest rate and still sleep in his mansion. But the folks he lends to will also be able to sleep with a roof over their heads and some sense of security. Now we have to hope that the House agrees and buries this bill before it goes any further.

John Burbank is the Executive Director of the Economic Opportunity Institute ( He can be reached via email at


Finks bikie sued over $275,000 loan


District Court documents reveal Finks bikie member Andrew Majchrak has allegedly defaulted on a $275,000 cash loan. Source: News Limited

FINKS bikie Andrew Majchrak is being sued for more than $760,000 by the brother of a former rival gang member.

District Court documents reveal Majchrak has allegedly defaulted on a $275,000 cash loan provided by Maxwell Yost – the brother of former senior Rebels bikie and killer Edward Yost, who is serving a 30-year non-parole period for torturing and then murdering his girlfriend.

The loan was provided in 2005 with court documents alleging Majchrak made just five monthly payments of $7425 before defaulting.

The statement of claim reveals that “on or about October 5, 2005” Maxwell Yost and his brother Edward agreed to lend Majchrak $275,000 on terms that included interest at the rate of 32.4 per cent per annum, monthly repayments of $7425 equating to 2.7 per cent of the principal by either bank cheque or direct bank transfer until repayment and the repayment of the principal and any outstanding interest “upon the giving of 60 days notice in writing to do so.”

The claim states the loan agreement “is evidenced by a memorandum in writing” signed by Majchrak and dated October 5, 2005.

It states that shortly after the agreement was signed and before the advance of the $275,000 principal, the loan agreement “was novated upon terms that the plaintiff would advance the principal without any contribution of Edward Yost and would be solely entitled to repayments from the defendant.” It states the principal was advanced to Majchrak on October 31 from Yost’s “Mykya Investments” account.

When Majchrak did not make any further monthly repayments he was on July 23 given notice in writing he had 60 days to repay the loan.

“Despite the notice to repay, the defendant has failed to and continues to fail to repay the said loan together with interest in accord with the terms of the loan agreement,” the claim states.

Mr Yost is claiming repayment of the $275,000 principal, interest totalling almost $520,000 – less the $37,125 he repaid in the first five instalments – a total of $760,625.


Moneylender helped loan shark

By Elena Chong
The Straits Times
Sunday, Nov 11, 2012

SINGAPORE – Tempted by an offer to earn extra cash, a licensed moneylender agreed to help his friend run his loan-sharking business.

Go Tian Siong, 38, was promised 20 per cent of the profits. On average, he earned about $2,000 to $3,000 a month from 2008 to April this year before he was caught.

On Thursday, he was sentenced to 15 months’ jail and fined $210,000.

The owner and manager of Advance Credit, a licensed moneylending business at Bukit Timah Shopping Centre, had admitted to seven charges of helping Tan Ah Lye, 38, operate the loan-sharking business.

Fifteen other similar charges were considered during his sentencing. As he could not pay the fines, he will serve another seven months in jail, making it a total of 22 months in prison.

Deputy Public Prosecutor Timotheus Koh had told the court that in early 2008, Tan had contacted Go and asked if he was keen to help out in Tan’s unlicensed moneylending business.

Tan arranged for a runner to hand over a mobile phone to Go. He said debtors and borrowers would call that contact number to take and repay loans.

Mr Koh said Tan would contact Go and give him details of debtors whose payments were due as well as the amounts owed. The debtors would call and Go would arrange for them to meet a runner to hand over the payments.

Go also had to liaise with new borrowers and convey their requests for loans to Tan.

Acting on a tip-off, police arrested Go at his flat in Jurong West Street 42 on April 25 and seized cash of $15,000 and six mobile phones.

Go’s lawyer, Mr Leslie Netto, said his client’s licence was suspended after he was charged. He now works in a cleaning-service business owned by his brother.

District Judge Toh Yung Cheong said these were very serious offences spanning a long period of time. “The excuse that you needed the money to raise a family is not a good excuse when the offences caused a problem for other families,” he told Go.

Tan is wanted by the police for unlicensed moneylending activities.

Get a copy of The Straits Times or go to for more stories.


LendUp Offers Friendlier Alternative to Payday Loans – Liz Gannes …

Image Lendup-380x193.png

Kleiner Perkins, Andreessen Horowitz and Google Ventures Fund Payday Loan Alternative LendUp

Two half-brothers from Oakland, Calif. — one who worked at Grameen Bank and Citigroup, the other at Yahoo and Zynga — have teamed their banking and Web application expertise to make a more friendly version of payday loans.

And they’ve raised some high-class money to get it started.

LendUp, which launches today in California, will make loans of up to $250 for 30 days to people with poor credit.

LendUp has raised an undisclosed amount of seed funding from Kleiner Perkins Caufield & Byers, Andreessen Horowitz, Google Ventures, Thomvest Ventures, Kapor Capital, Bronze Investments, Founders Co-op, Data Collective, Y Combinator, the Start Fund and others, including debt that the company will use to fund its customers’ loans.

LendUp is less shy about sharing its loan pricing for its own customers: Basically, borrowers will be charged interest of 15 percent of the loan amount, minus a small discount for paying early.

The average default rate for credit cards is 7 percent to 12 percent, says LendUp CEO Sasha Orloff (he’s the banking brother), and LendUp expects it will see rates higher than that.

LendUp CEO Sasha Orloff

But the company says its secret sauce — besides a friendly, modern Web site and in-house customer service — is the way it calculates risk based on personal data, and the way it will stick with a person over time to graduate them to safer loans. To start with, LendUp expects to approve 15 percent of applicants.

Credit card companies and banks are the original data miners, so it’s not necessarily clear to me that LendUp will have an advantage there. The stepbrothers did some hand-wavey stuff when we got to this part of the interview at their office in San Francisco’s Union Square.

But beyond data, the site also uses “gamification” — challenges and rewards, courtesy of Jacob Rosenberg, the brother who was at Zynga — to try to level up loan recipients over time.

LendUp CTO Jacob Rosenberg

The stepbrothers contended that it’s that long-term relationship that will make LendUp a good business. Over time, borrowers can get better loans and build their own credit.

They face competition from existing payday lenders, as well as start-ups BillFloat and ZestCash — though those companies help pay bills and make lower-risk installment loans, so they’re not exactly the same thing.

How big is the market opportunity for this? It’s not at all tiny. In the U.S., 15 million people take out “small-dollar credit” products, with $44 billion in payday loans expected in 2012, according to the Center for Financial Services Innovation and the Center for Responsible Lending.