Payday Loan Lowdown

Her name could have been anything — Jane or Jennifer, but her story has a resonance and bears similarity to many other stories that are being repeated across the nation. She is a woman who only wants to do her day job, pay her bills and bring up her family. As the needs of her family increase, so do the expenses and that’s when the problem arises. It’s when you are in such a vulnerable situation, that you see a sign that you feel is your salvation. Only problem is that this sign, which says ‘easy money’, may just lead you into a debt trap from which you may find no escape.

Easy money or fast cash are the synonyms associated with payday loans. Of course, on that one count, the industry is quite truthful. You get the money fast and easy. However, it is only once you’ve taken the loan that your problems actually begin. Most lenders allow you to stretch the loan payback date — and usually, most people require this extended time. The company allows you to extend time for only one purpose though — it can then charge you exorbitant interest rates and you will not know what hit you.

Is this the face of things to come for the payday loan industry? It would definitely seem so. What am I talking about? The new card introduced by Bi-Lo that gives customers a credit line of up to $200 for groceries. Myrtlebeachonline.com reports:

"This is potentially moving the payday-loan transaction from the payday-lending shop to the grocery store," said Al Ripley of the North Carolina Justice Center in Raleigh. "This is very expensive credit. Our concern would be that if people are desperate for food, you run the risk of taking advantage of folks."

Read more: Bi-Lo offers grocery credit card for those short on cash

I don’t care what people say about Canada and Canadians, the one thing I find quite impressive about the country and its people is the way they have tackled the payday loan problem. Here we are still confused about what the ‘exactly’ right course of action would be while the Canadians have gone right ahead and tried to work out solutions to their payday woes. A few months back, Manitoba’s provincial government introduced a legislation that would limit the amount of interest payday loan companies can charge.

And now, a Supreme Court judge recently ruled that a B.C. payday loan company was charging “criminal” rates of interest to clients borrowing to make it through to their next paycheck. This first class-action civil ruling is expected to create a ripple effect for the multi-million-dollar payday loan industry in the country. During the trial in April, the court heard that the payday loan company, A OK charges a 21 percent interest rate and a processing fee of $9.50 for every $50 borrowed. Justice Brenda Brown ruled the processing fees and late fees charged by the A OK Payday Loans Inc. were interest. Fftimes.com reports:

A OK denied the fees were a form of interest and argued the Criminal Code section that it was being applied was not aimed at businesses like theirs but for the loan-sharking industry.

Read more: Payday loan company charging ‘criminal’ interest rate: court

The payday loan business is booming and the number of outlets now offering the sub prime low-dollar, super-quick loans has doubled to over 20,000 in the last four years. Cash Now has integrated a payday loan verify database that will allow the company to interface with payday loan sub prime credit reporting agencies and identify potential bad loans and reduce loss exposure. Rtoonline.com reports:

According to Cash Now, the negative database (accounts with returned checks) includes more than 22 million accounts. The positive database contains more than 138 million DDA consumer accounts. The package, called Loan Verify, uses data from 120,000 merchants and 260 collection agencies.

Read more: Cash Now Integrates Sub Prime Database

I’ve written and written on how bad payday loans are and of how the lenders are usurious. If you’ve ever taken a payday loan, you’ll also know how the rates are unbelievably high. Most people who have taken a payday loan seem to be caught in a debt trap and there seems to be no way out of it. And the worst part is when these payday lenders cheat you in addition to charging you unbelievable rates.

Now there are many other such seemingly okay rules, which are not actually allowed by the law. In case you feel that your lender has violated the Truth in Lending Act, you can file a complaint with the Federal Trade Commission (FTC). Call their Consumer on toll free: 1-877-FTC-HELP (382-4357): TDD: 202-326-2502. You can also use the FTC’s online complaint form to register your complaint. But be warned, the Commission cannot resolve your individual problem, but it can definitely act against a company if there is a pattern of possible law violations. So, don’t hesitate to file your complaint.

Finally, somebody has the heart to help our hapless armed forces. No, nobody’s ventured to go out to Iraq or Afghanistan… A group of 70 people have planned to help the military wage war with an enemy closer home — payday loans. Kansascity.com reports:

An impressive alliance of 70 consumer and veterans groups is supporting a congressional amendment to protect military personnel and their families from potential predatory loans. The groups say the proposal by Sen. Jim Talent, a Missouri Republican, and Sen. Bill Nelson, a Florida Democrat, will guard military personnel against 300 percent payday loans that can ensnare their families in webs of debt and create financial stress and reduce their military readiness

Read more:Payday loan rate cap aims to help service members

Leaders of Keizer city, Oregon have decided that a state law restricting payday loans is enough for their city and have decided against further discussion of a separate law with an earlier time frame. Oregon’s payday-loan law will take effect in July. It sets a $10 loan fee for each $100 borrowed, caps interest at 36 percent annually and requires a minimum loan duration of 31 days. Statesmanjournal.com reports:

Councilors had two main concerns, Keizer Mayor Lore Christopher said. "There were suggestions that this could become a campaign issue," she said. "And there just wasn’t any support for it." The other issue is the use of resources toward something that already has been decided.

Read more:Keizer will await 2007 payday-loan law

You probably have your reasons for using payday loans — your paycheck is not enough to cover all your expenses, or you require some money for an immediate purpose and don’t have enough liquid cash…. The reasons are numerous but the result is usually the same. You take a payday loan for two weeks, are unable to pay off the money at the end of the term, extend the term for some more time and before you know it, your debt burden is threatening to bankrupt you. I have painted a scary but real picture of what you can expect if you take a payday loan. So, what other alternative do you have in case you need some ready cash? I have suggested below a few alternatives that could help you tide over your financial problems:

Company Advance: Some companies and employers grant paycheck advances to employees. Since the amount you are given is an advance against your salary and not a loan, you don’t have to worry about interest. This makes it a whole lot cheaper than payday loans.

Community Groups. You may not know this but there are quite a few faith-based groups and community organizations that provide emergency assistance. This is done either directly or through social services programs.

Credit Cards: Ever tried getting a cash advance on your credit card? If you haven’t done it yet, try out this method. These advances are offered at about 30 percent APR and are much cheaper than getting a payday loan. Then there are credit union loans, which are short-term loans. Since the topic of credit union loans deserves a little more space, we will return to the topic again.

Fast Cash loan service, a payday loan company with offices in Arcadia and Eagle Rock faces allegations of deceptive business practices and fraud. The complaint against the firm was filed by the California Attorney General’s Office recently. The complaint seeks nearly $2 million in civil penalties of which, $350,000 will be in restitution to former customers. The firm though is now defunct. According to the complaint, Fast Cash is alleged to have charged excessive and illegal penalties to customers who wrote bad checks to secure payday loans.

The firm threatened lawsuits, and tried to squeeze settlements. When none of these threats worked, the firm even deceived the court to win improper judgments against over 400 customers. California law allows a lender to collect a penalty when a customer bounces a check used to secure a payday loan. The penalty is equal to the amount of the check and has a $15 handling fee. Pasadenastarnews.com reports:

The complaint says Fast Cash demanded customers pay four times the amount of the bad check. Any customer who refused to pay was taken to small claims court. According to AG spokesman Aaron Carruthers, since a majority of the borrowers did not attend the hearings, and Fast Cash did not divulge the nature of its loans, the court generally ordered that the penalty be paid.

Read more: Payday loan firm faces charges

Here’s a bit of news, which will make payday lenders go, “I told you so”. Well, while the world thinks they are usurious and have a debilitating effect on people, there are others who think payday loans are not so bad after all. Some of them even advocate the need to allow military personnel access to payday loans.

A recent study funded by the Consumer Credit Research Foundation, a non-profit research group, found that military enlisted personnel have the same short-term credit needs as their civilian counterparts. So it follows that they should not be denied access to payday loans and other short term credit products. This report effectively refutes recent calls for the Department of Defense to limit the access of military personnel to payday loans. According to the report, any attempt to stop payday loans and other forms of credit could have unintended consequences. So the best thing to do is make the market more competitive so that the soldiers get a reasonable bargain.