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Nine Signs of a Predatory Payday Loan
1. Triple digit interest rate
Payday loans carry very low risk of loss, but lenders typically charge fees equal
to 400% APR and higher.
2. Short minimum loan term
75% of payday customers are unable to repay their loan within two weeks and are
forced to get a loan "rollover" at additional cost. In contrast, small
consumer loans have longer terms (in NC, for example, the minimum term is six
months.)
3. Single balloon payment
Unlike most consumer debt, payday loans do not allow for partial installment
payments to be made during the loan term. A borrower must pay the entire loan
back at the end of two weeks.
4. Loan flipping (extensions, rollovers or back to back transactions)
Payday lenders earn most of their profits by making multiple loans to cash-strapped
borrowers. 90% of the payday industry's revenue growth comes from making more
and larger loans to the same customers.
5. Simultaneous borrowing from multiple lenders
Trapped on the "debt treadmill", many consumers get a loan from one
payday lender to repay another. The result: no additional cash, just more renewal
fees.
6. No consideration of borrower's ability to repay
Payday lenders encourage consumers to borrow the maximum allowed, regardless
of their credit history. If the borrower can't repay the loan, the lender collects
multiple renewal fees.
7. Deferred check mechanism
Consumers who cannot make good on a deferred (post-dated) check covering a payday
loan may be assessed multiple late fees and NSF check charges or fear criminal
prosecution for writing a "bad check."
8. Mandatory arbitration clause
By eliminating a borrower's right to sue for abusive lending practices, these
clauses work to the benefit of payday lenders over consumers.
9. No restrictions on out-of-state banks violating local state laws
Federal banking laws were not enacted to enable payday lenders to circumvent
state laws.
Taken from the Center for Responsible Lending website: http://www.responsiblelending.org/issues/payday/ninesigns.html |