All Articles Tagged "payday lenders"
(Daily Finance) — Kim Higdon separated from her husband of more than 25 years, taking nothing but her clothing and daughter. She managed to scrape by until she broke a tooth. The dental bill took all the money she had, and she had to borrow $500 from an online payday-loan provider to cover rent. That loan was expensive: She paid 798% interest for the six days it took for her paycheck to arrive so she could pay off her loan. As absurd as it sounds, Higdon got off lucky compared to many other borrowers of online payday loans. At least she was able to pay off her loan, albeit at nearly nine times the amount she borrowed. For many others, the cycle can quickly morph into a mess. Using a more conservative scenario, Jeffrey Woolf, a certified financial planner, explains how this happens: Say someone takes a $500 advance with a 20% interest rate and owes $600 when the loan comes due. This may force the borrower to take another loan out to cover the principal and interest owed, potentially leaving the borrower even shorter than he or she was the first time.
(Daily Finance) — Members of America’s military face threats to life and limb around the world every day, but it’s a domestic threat that has recently put the top brass on the offensive on the home front — predatory lenders.In 2006, the Department of Defense researched the problem, interviewing soldiers who had been devastated by payday loans. While each story is unique, they all include the same basic series of events: A soldier takes out a seemingly simple loan and soon finds him or herself drowning in an ever-deepening morass of debt. Take, for example, the case of an Air Force sergeant who got behind on her car payments and rent. To catch up, she took out a $500 payday loan, agreeing to pay back $600 in two weeks. Things spiraled downhill from there:
“Unable to repay, she took out other payday loans … to pay off these loans, she contacted an installment loan company who provided her with a $10,000 loan at 50 percent APR. Total cost to pay off the payday loans was $12,750 and her total obligation to the installment loan company was $15,000. Her financial problems were a contributing factor to her pending divorce.”
It isn’t hard to see why so many members of the military borrow from payday lenders. Across the country, the areas around military installations are almost always cluttered with payday lenders, rent-to-own stores and other companies that offer fast cash for desperate borrowers. This is no accident: Military personnel and their families are ideal targets for unethical lenders.
(Daily Finance) — The Center for Responsible Lending has released anew reportabout payday loans, and the picture it paints is seriously depressing. What’s worse is that the report published Thursday actually understates the grim reality facing payday borrowers today. For the uninitiated, a payday loan is a particularly expensive way to pay bills. In principle, the idea is simple: The company lends the borrower money for whatever their immediate need is, charges a fee, and then a few days later, on payday, the borrower pays the loan back in full. If that were all that happened, it would be hard to see the harm. That’s why the industry markets itself as a type of very short-term credit. The industry’s trade group counsels: “[A] payday advance is inappropriate when used as a long-term credit solution for ongoing budget management.” But the report found that only 15% of payday borrowers were one-time users.
Stand on any corner of any ‘hood in America and you’re likely to see three things: no, it’s not a liquor store, Chinese take-out or Church, but rather a check cashing center, a pawn shop and a payday lender.
Those three establishments have become the unofficial backbone of the alternative banking system, which mostly operates in lower-class neighborhoods in America. They have become the symbol of the type of predatory high-interest lending practices that scam mostly poor and working class people in ways that the middle class and well-off will never know.
So it’s no surprise that 20 states have either imposed restrictions on the amount of interest and fees these institutions can charge, or have passed laws to ban them completely from operating. This is particularly true of the payday loan (also known as cash advance) industry, which has become notorious for participating in some extremely shady business practices.
However, some of the more unethical high interest payday lenders have found various loopholes around these oversights and bans. Recently, a group of payday lenders formed associations with some Native American tribes and are engaging in legal fights in California, New Mexico, West Virginia and Colorado to get claims for being “tribal enterprises.” This association means that payday lenders can claim tribal-nation sovereignty, which allows them to operate outside state oversight and make loans to non-Native Americans living far from the reservations.
Besides affiliating with tribes, some payday lenders have opt to operate online, mostly from offshore headquarters so that they are completely outside of any U.S. regulation.
Many Americans, particularly those who don’t live paycheck to paycheck and have access to legitimate banking institutions, aren’t familiar with the payday-loan industry. Those people should consider themselves lucky. But there are some 40 million who make less than $30,000 a year that aren’t immune from payday advance companies. These companies offer short-term loans that are mostly small loans that average a few hundred dollars for a few weeks while charging annual interest rates for as much as 500%.
In other words, if you borrow $200 today, you might end up paying back double – if not five times that amount – by the end of the loan term. Some payday lenders offer these loans against federal and state tax returns, unemployment checks and car titles, so if the loan is not paid back in time, it could result in late-night repossessions by lenders.
Now that we see how greed and deregulation had a hand in creating the subprime mortgage crisis, it’s time that we regulate the hell out of these institutions and put an end to the poverty industry once and for all. Even though credit is harder to come by, the working poor still continue to be big business for much of the payday lending industry.
Charing Ball is the author of the blog People, Places & Things.
(The Baltimore Sun) — Maryland is on the verge of once more making it harder for payday lenders — especially over the Internet — to offer high-priced loans in the state.
The General Assembly overwhelmingly approved legislation to prevent payday lenders from getting around Maryland’s interest rate cap on small consumer loans. Gov. Martin O’Malley is expected to sign it into law, which would kick in Oct. 1.