Budgeting, Christian Credit Counselors, Credit Cards, Credit Counseling, Debit & Your Credit Score, Debt, Money Management, Saving

Payday Loans: Borrower Beware

Considering Payday Loans

Strapped for cash? Thinking of getting a payday loan? Think again! Payday-Loan

It may be tempting to get a payday advance to hold you over for a week or two until your next paycheck. What could be the harm? The industry claims they’re providing needed credit to consumers who aren’t able to qualify for conventional loans. The industry claims they are helping those hurting for cash. However, many financially wise see these businesses as predatory. They could even be comparable to old-fashioned usury, luring the borrower further down debts beaten path – dead ending at a financial crisis.

Understanding Payday Loans

Payday lending, or cash advance, is a practice of using a post-dated check or electronic account information as collateral for a short-term loan. Borrowers simply need identification, a bank account and income from a job or benefits, such as Social Security or disability.

Loans aren’t dependent upon the borrower’s credit history. By design, this loan process keeps borrowers in debt. No matter the claim, these businesses are not there to help people out of a bad financial situation. Generally, these lenders don’t accept partial payments. When you can’t pay it off on time and in full, you have to renew the loan.The interest and fees add up quick and become shackles, keeping you in the cycle of debt. According to the Center for Responsible Lending, 90% of payday loans go to repeat borrowers—five or more loans per year. They’ve also reported that these lenders receive $4.2 billion in fees from Americans each year.

The Ins and Outs of Payday Loans

Let’s say you need a $400 loan and plan to pay it back with your next paycheck. You are required to give a post-dated check for $460 and receive in return the $400 cash. The lender agrees to hold the check until your next payday. Then, when the loan is due, the borrower has the option to redeem the check by paying $460 in cash, or renew the loan, known as flipping. Flipping involves paying off the $460 by taking out a new $400 loan, or allowing the lender to cash the original check. The finance fee of the initial loan is, in this case, $60, or 390% APR! If the borrower decides to renew the loan three times, which is what most do, the finance charge will end up being $240 – just to borrow $400!!

You can see from this example why this practice is very dangerous and controversial. Critics argue that the lenders are exploiting those who are already desperate because of their current financial crisis. Borrowers get trapped in a cycle of debt. Payday lenders depend on this, and they love the repeat borrower. Because of the controversy, fifteen states have made payday lending illegal.

Do you want to know more about debt and how you can make smart financial decisions now that will help you secure a more prosperous financial future? Sign up for our newsletter for monthly money tips.

    Full Name (required)

    Email (required)

    Are you a current client of Christian Credit Counselors? (required)

    Type the code below in the text box. (required)
    captcha


     

    ​Read More
    Budgeting, Christian Credit Counselors, Credit, Credit Cards, Credit Counseling, Debit & Your Credit Score, Debt, Money Management, Saving

    Debt Collectors: Know Your Rights Against Wrong Practices

    Doomsday Debt Collectors debt1

    Debt collectors may be within their right to pursue repayment, but you should know how to protect yourself against doomsday debt collectors and their extreme tactics.

    Fair Debt Collection Practices Act

    First, you should be aware that there are laws in place that govern the practice of debt collection. The Fair Debt Collection Practices Act was written for your protection and is enforced by the Federal Trade Commission, our national consumer protection agency. This Act covers a variety of debts, including personal and household, but not business debt. Examples of covered debts are: home, auto, medical, and credit card debt.

    The Facts about Debt Collectors

    • May not use abusive or deceptive tactics
    • Must send the debtor a validation notice within 5 days of initiating contact
    • Written validation notice must include: amount owed, the creditor to whom money is owed, and what to do if the debtor says they don’t owe
    • Must contact during reasonable hours (Ex. not earlier than 8 a.m. or later than 9 p.m.)
    • May not attempt contact at a person’s work (with a written or oral statement)
    • May contact third parties for a person’s contact info (often limited to one time)
    • Must contact your attorney, if you are being legally represented
    • May not discuss the details of the debt with those outside of the debtor, debtor’s spouse or representing attorney
    • Must stop contacting the debtor upon receipt of a written notice by debtor indicating the debt is not owed or seeking proof (within 30 days from date of validation notice)
    • May continue to contact the debtor once proof of debt has been provided

    Putting a stop to Debt Collection

    Your first conversation with a collector should be an attempt at resolution. Determine whether you owe the debt. Depending on the outcome of that initial conversation, decide how you will proceed. If you want to stop a collector from contacting you, provide it in writing. Be sure to make a copy of everything you send and mail the document by certified mail with a return receipt. From that point, the debt collector may tell you that there will be no further contact, or they may indicate their next step. If a creditor still wants to collect from you at this point, they may pursue legal action by filing a lawsuit.

    In the event that you are sued by a debt collector, respond or have your lawyer respond by the date indicated in the lawsuit to stay within your rights.

    Reporting Debt Collection Misconduct

    Notify the Federal Trade Commission and the Consumer Financial Protection Bureau of a debt collector who doesn’t operate within the bounds of the law. Additionally, inform your state Attorney General’s Office, and inquire about the state laws that differ from the Fair Debt Collection Practices Act, as well as, your rights.

    Christian Credit Counselors is a non-profit organization that was created to help individuals and families regain control of their finances through the use of educational tools, credit counseling and other resources. For more resources, visit www.christiancreditcounselors.org.

    Do you want to know more about debt and how you can make smart financial decisions now that will help you secure a more prosperous financial future? Sign up for our newsletter for monthly money tips.

      Full Name (required)

      Email (required)

      Are you a current client of Christian Credit Counselors? (required)

      Type the code below in the text box. (required)
      captcha


       

      ​Read More