Payday loans are short-term loans. The loans range from 13 to 120 days. The most you can borrow is 25% of your gross monthly income or $1000 whichever is less. The finance charges, fees or interest (whichever term you prefer) are extremely high compared to other forms of credit.
Here’s an example, let’s say you borrow $300 until your next payday. You write a postdated check or provide checking account access for the next payday, for $345 ($45 in finance charges or the equivalent of 390% in interest).
When payback day comes, you either pay directly or the lender cashes the post-dated check or debits your checking account. Depending on which state you live in, you may be able to extend or roll-over the loans which of course means more finance charges.
Following are some of the issues with payday loans:
Following are six unsavory business practices used by unscrupulous payday lenders. They are:
Less than full or no disclosure of terms- One borrower received a cash advance for $350. Each payday, his checking account got debited for $90. After about $400 worth of debits, only $50 of it went toward the principal. He claimed he didn’t receive any disclosures. In fact, he claimed they told him,” We are not responsible for what our agents told you.”
False Advertising The advertisement read “Online Cash Advance, No Credit Check, No Bank Account, No Problem…”
This consumer believed the ad. He thought he was completing an online cash advance form only. However, the form contained questions about his credit and also asked for bank account information. The consumer answered the questions.
Then he noticed there were non-disclosed charges. He didn’t go any further with the application process. However, five days later his account was debited for one of the fees.
Non responsiveness- One consumer received a cash advance. He noticed $120 being deducted from his account every two weeks. After eight months, $1920 in deductions and repeated calls and messages, he never received a response from the firm.
Deceptive Practices- One consumer provided his bank account information in box 1. Then he noticed a onetime $99 fee and a $14.00 member monthly membership would be assessed. He didn’t want to incur that so he stopped the completing the application. He thought the process was over.
However, five days later, $99 got debited from his account. As he put it, “Box 1 is where the nightmare was confirmed”.
Deceptive practices 2- This consumer borrowed $300 with the expectation he would pay back $390 on the next payday. However, when the day came, only $90 got debited from his account. This caused a rollover of the principal and another $90 fee.
This was despite the fact he claimed he contacted the company only to be treated rudely and be told they never received his request for the full payment to be debited.
Harassment- One consumer experienced very aggressive collection practices (Payday companies need to follow the same laws as other creditors when collecting debts.). This began with calls at home and at work. The calls continued to his boss and even his boss’s boss.
This went on to the point where the collector called the consumer and said he had his boss’s boss on the phone (untrue) and he was going to conference the consumer in.
No loan received but account still debited- One consumer on disability trying to borrow $200, was told he had to send more employment information. Having changed his mind about the loan he did not do so.
He never received a loan but did get a $33.98 charge debited from his account. This caused him to receive a $35 overdraft.
No loan received but account still debited #2- One consumer posted a story of how he got called at work from a representative at a company. He was told he was being sued and needed a lawyer.
The company representative said the consumer owed money for a payday loan. The consumer claimed he never received a payday loan, ever.
Buyer Beware of Payday Loans
If there was ever a case of buyer beware, payday loans seems to be it. It appears the minute you provide your bank account information, you’re ripe for all type of financial mayhem.
Plus, what happens is that many people realize they’re in no better financial shape when the loan becomes due than they were the first time they borrowed the money. Because of this, they can get caught up in an awful cycle of constantly borrowing and extending payday loans. This quickly becomes a type of expensive financial quicksand.
In fact, the payday loan company counts on, and maybe even subtly encourages rollovers. They know that most people will not have the funds to pay back the loan along with the finance charges when they’re due. As a result, the borrower will be forced into another extension with additional fees and on and on and on.
As a result, any consumer considering this type of loan really needs to do research about the payday loan company prior to giving their financial information to one of these firms. There are some decent payday loan companies out there. But they can be tough to ferret out from the ones who use any of these six unsavory business practices.