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Payday Loans: They Just Won’t Go Away

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CIN Alert for October 4, 2011
The Community Investment Network

As the days of a stagnant economy drag on, some people who have run into personal credit issues — such as bankruptcy — are turning to payday lenders to solve an immediate financial need. That can be a slippery slope for many individuals. Granted, payday loans can help certain consumers with their short term cash flow problems. However, they can also lead them into an uncontrollable spiral of debt.

Payday loans are not legal everywhere. Many states — including New York, Connecticut, New Jersey, Maryland, and Massachusetts — have outlawed the practice. Even the states where they are permitted have adopted some laws to protect unsuspecting consumers, such as capping the amount of interest a lender can charge. The Federal government has also enacted laws to protect consumers from abusive lenders during attempts at collection.

Nevertheless, payday lenders are an ingenious group and they have developed ways around the law to take advantage of an unsuspecting consumer. For example, payday lenders have been known to capitalize on consumer ignorance by offering loans that are illegal in their state, or may contain onerous payback terms that require the consumer to keep rolling over their loans just to make ends meet.

Another frequent pitfall:  high interest rates. Most payday lenders charge as much as they can according to state law. This means an individual could end up paying more in interest than in principal. That’s precisely how many people end up in serious financial difficulty. Payday lenders are also known to charge very high fees and assess outrageous penalty charges if the consumer gets behind on their payments. Unfortunately for many borrowers there are no state or federal regulations which limit the amount of these types of fees or charges.

The danger in payday loans has been recognized by personal finance experts for some time, and good faith efforts have been made to address the dangers. However, a lack of financial literacy among the public combined with the continued economic recession has resulted in a bumper crop of companies lining up to offer payday loans to the unsuspecting.

Here at CIN, we believe it is important to provide timely information about payday loans. CIN maintains a complete section with relevant information on all types of financial issues, good and negative, in our: Financial Literacy content section.  Here you will find information of value to consumers and lenders; everyone interested in advancing personal financial literacy. Bankers and lenders, community advocates, civil rights leaders, educators, academics, and consumers, many of which already offer a menu of financial literacy programs and initiatives for consumers.

A wide range of financial literacy tools and resources is readily available to help individuals and families deal with their financial needs and concerns. CIN places all these tools ‘under one roof’ so our readers will be fully educated. We also include related news and commentary, updated daily. Here are some recent excerpts:

Law quashes local payday lenders
(Source: The Columbian) Payday lending offices in Clark County, Washington, have decreased since the state enacted a law curbing predatory lending, which a new report says has saved millions of dollars for Washington state residents. The law went into effect Jan. 1, 2010. It offers access to a strong repayment plan and an eight-loan limit that is only available in Washington.

Payday loans a debt trap for welfare recipients
(Source: Health Canal.com) Research shows welfare recipients are using payday lenders to meet regular living expenses and are then trapped in a debt spiral, continuously indebted to one or more loan companies for considerable periods.

Ark. AG files lawsuit against payday lender
(Source: Business Week) Arkansas Attorney General Dustin McDaniel is suing an online payday lending company that he says is breaking the law by charging customers 681 % annual interest rates.

Birmingham City Council delays vote on banning payday loan stores
(Source: Alabama’s 13.com) The Birmingham City Council has considered putting a moratorium on Payday lenders in the city, but delayed the matter as some council members were concerned it might be legally challenged or have unintended consequences.

FTC Action Halts Allegedly Illegal Tactics of Payday Lending Operation That Attempted to Garnish Consumers’ Paychecks
(Source: Federal Trade Commission)After the Federal Trade Commission filed an action in U.S. district court, a South Dakota payday lender that allegedly attempted to illegally garnish consumers’ wages has agreed to stop the challenged conduct pending trial.

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  1. October 6, 2011 at 11:37 am
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