Payday Loans Can be Abusive to Consumers
Payday loans are considered to be some of the most abusive loans that consumers can take out. Payday lenders thrive on subprime loans, and congress has tried unsuccessfully to crack down on them. But in today’s market there’s always someone looking to make a profit by changing the landscape. Such is the case with payday loans.
What is a Payday Loan?
Payday loans, as the name implies, are basically advances on people’s paycheck. They give people access to what they will be paid, before they actually get paid from their employer.
However, many payday loans come with exorbitant interest, and because those who get payday loans are often living paycheck to paycheck, the loans tend to pray on those who are most desperate.
A 2013 report found that 58% of people who take these loans out cannot pay their monthly expenses and deal with “persistent cash shortfalls.” In the meantime, payday lenders raked in about $4 billion in fees.
Interest rates are exorbitant. In Florida, the legal cap on interest is over 300%. In many states, the interest rate can exceed 600%. Efforts to cap interest have been successful in some states, but not in others.
Borrowers often find themselves in an endless cycle of debt, having to borrow more for each successive paycheck to make ends meet, while also having hundreds of dollars in interest taken from their accounts. Many lenders require permission to automatically withdraw from borrower’s bank accounts as a condition of the loan. This leaves borrowers with overdraft fees when money that they expect to be in their account is not there.
Payday lenders do not check credit, or assess a borrower’s financial condition. A rule was proposed that would require payday lenders to assess whether borrowers could actually pay back the loans that they were receiving. However, that rule was never put into effect.
New App Tries to Fix the Problem
A new app is now letting people borrow from their paycheck, promising that they are different than payday lenders. The app only allows people to borrow money once they have earned it at work. So, for example, if someone leaves work for the day, and earned $150 that day, they can withdraw $150 on the spot. Thus, the app’s makers say that they are not advancing or loaning any money, just giving people access to it the minute it is earned.
But others say that the app is simply loaning money. The app verifies someone’s salary or wage information, and based on that information the app is fronting money to the user, and then getting paid back when the user gets paid. That, say consumer advocates, is just a loan.
The app touts that interest and fees are voluntary, although consumer advocates point out that if a “voluntary” interest payment is not made, the maximum that can be taken out by borrowers is $100.
Abusive interest rates and subprime loans that take advantage of consumers are seemingly everywhere. Contact the Miami consumer rights attorneys at Jacobs Legal to help you protect yourself if you are being harassed by a debt collector, or charged illegal or unfair interest rates.