Payday Loan Lowdown

Payday loans are a painful reality. It helps if you have one around but they can also cause your destruction if you are not careful. In other words, a payday loan is the proverbial double-edged sword. It is a fact of life in America today that we don’t have enough money to meet our needs. And while regular folks like you and me are affected, it becomes a problem with national dimensions when it involves our soldiers.

Since it has become such a problem among the armed forces, the federal government is looking at ways to protect soldiers from payday loans. So, is there a way in which we can get the benefits of a payday loan without the problems associated with it? There is one solution that has been around for quite some time now but has not received the attention it should: credit unions. Rdunews14.com reports:

Fort Bragg Federal and Pentagon Federal Credit Union offer ARK loans, which stands for Asset Recovery Kit. It’s a no-interest loan of up to $500, and there’s a one-time $6 fee. If someone takes out more than one loan, they have to go to credit counseling.

Read more: Credit unions offer payday loan alternative

How could the payday lending industry sit tight while the Senate and the Defense Department hurl accusations at them? Recently, supporters of the payday lending industry petitioned members of the Senate to block proposed limits on short-term loans to troops, saying the Defense Department is overreacting to the problems of a small number of servicemembers. Estripes.com reports:

On Thursday, industry representatives testified before the Senate Banking, Housing and Urban Affairs about the report, saying it lacks any real data showing that servicemembers are at risk. “We think potentially far-reaching decisions regarding the availability of consumer credit should only be made after an even-handed analysis of such data,” said Hilary Miller, president of the Payday Loan Bar Association. “But this report presents only the point of view of [industry] opponents.”

Read more: Senators consider payday loan limits, criticize industry

A recent survey shows that most Americans know that their finances are in a mess and that they plan to repay their debts at the earliest possible. But many of them are still clueless about how they plan to go about such lofty ideals. I mean, one fine day you do decide to repay your bills but don’t have enough money, so what do you do? Walk into the nearest payday loan store, borrow money and repay another loan. Crazy? You bet. One of the biggest problems Americans face is that they refuse to plan their financial strategy. Most of them operate spontaneously. You suddenly decide that you want to save some money, and put aside whatever you can manage to keep from spending. While this may technically be called saving, you know very well that you are only cheating yourself.

What you need is a concrete plan that will make you save a particular amount of money every month. A plan that is tailored to your requirements so you can stick to it even under pressure. Given below is the first step that will take you closer to the gates of debt freedom.

Examine expenses: The only way you can even begin to analyze the problem is by minutely examining your expenses. And don’t cheat. You cannot check the expenses for one month and then decide that the same holds true for the entire year. So the first thing you need to do is itemize all the statements, bills payable, loans and other payables for the past year.

Now, add up the numbers and see if your expenses outweigh your income. If yes, then you are in trouble and need to do something immediately. Here’s where you need to do some soul searching. Separate the expenses that are necessary and the ones that you can do away with. This will show you what expenses you could have avoided. Now use these figures to create a budget for yourself. Be realistic and don’t create a budget that is so austere that you find it difficult to adhere to.

If you live in the state of Utah, this one’s for you. I want to inform you about the state laws that regulate payday lenders. Why? Well, to be forewarned is to be forearmed — that’s why. And these are no toothless laws: The Department of Financial Institutions enforces these laws and conducts an annual examination of each payday lender’s operation. Here are a few features of the law:

• The lender must post a schedule of fees charged for a deferred deposit loan. The fees must be disclosed using the APR and the dollar amount of the fees.
• Your payday lender should post the complaint number — the number you can call to file a complaint. In case you don’t have the number, here it is: (801) 538-8830.
• Your lender cannot extend the loan beyond twelve weeks from the initial execution date of the loan.
• Your lender CANNOT threaten to bring criminal proceedings against you if a check you provide to the lender is returned for insufficient funds.
• You can rescind the payday loan and finance charges if you return the loan amount by 5:00 PM the next business day.

A recent report by the Economic Policy Institute, the rich got richer faster between 2001 and 2004. Alternately, the poor got even poorer and are finding it difficult to stay out of debt. Fortwayne.com reports:

That’s why more payday loan outfits are migrating from the inner cities to suburbs. Needy middle-income families are more willing than before to go into debt to maintain their standard of living.

Read more: Falling wages create more working poor

California Department of Corporations (DOC) recently ordered four online Payday Loan companies to stop making loans to California residents. The reason cited was that the stores have not been licensed in the state. Rtoonline.com reports:

Payday loan companies are required to be licensed by DOC under the California Deferred Deposit Transaction Law. To date, DOC has issued enforcement actions to 40 payday lenders operating in violation of state law

Read more:California Orders Online Payday Loan Stores to Stop Lending in State

Consumers have for long being harboring the misconception that payday loans are only for emergencies. If planned correctly, payday loans can be used to supplement your income so that you don’t have to use traditional long-term financing options.

Payday loans offer consumers the flexibility of planning their purchases or expenses. For example if you are planning to go on a vacation, your costs are bound to rise. Now if you try to take a loan from a regular credit company, you will have to go through credit checks and provide guarantees.

Payday loans ask for no such thing. You only have to provide proof of employment and that guarantees you an immediate loan. Recent studies have shown that an increasing number (about 34%) of payday loan customers use their money to pay for planned expenses or other discretionary uses

This is a story that repeats itself across small towns and suburbs of America. Till two years ago, you’d not be able to find a single payday loan company in these places and suddenly, they’ve mushroomed all over the place. With increasing frequency, payday loan stores — offering short-term loans at high interest rates — are surfacing across the country. So, weren’t these guys supposed to be in low-income neighborhoods — areas where people were usually short of cash and would need help from the store? And what are these stores doing in moderate-income neighborhoods? Well, according to experts, the businesses have now saturated low-income neighborhoods. So, they are forced to expand into moderate-income communities where more families are piling up debt.

However, the payday loan industry does take umbrage to this description of theirs. Some payday lenders are quick to point out that you HAVE to qualify for that loan and that they don’t attract trashy people (just what they mean by trashy people is a mystery to me). Well, so is that why they are now proliferating into moderate-income neighborhoods?

A recent report by the Brookings institution shows that there is a huge number of payday loans and check-cashing services in these kind of suburbs. So, is this the beginning of a new trend? Experts believe it is as middle-income households are now looking for new ways to borrow money. That’s because their wages are falling behind inflation and many have maxed out their credit cards.

In reality, these guys don’t have a choice. They cannot use their credit cards, their income is not enough to stretch across the month and they need to pay for at least the necessities. So what do you do? Borrow from the payday-lending store next door, of course!

A recent measure to curb payday-loan industry practices that target the military collapsed in the Legislature after some key backers shunned its weakened form. An Oceanside state senator who served in the Marines also refused pleas by Camp Pendleton officers to support a crackdown. So, while senators battle out their differences, they seem to have forgotten the fact that military families are still left unprotected. The push for the bill was bolstered by examples of troops paying as much as 400 percent interest on loans.

So what exactly happened for the legislators to oppose the bill? For one, the interest rate cap of 36 percent was eliminated. This made some initial supporters back off. The protections offered in the bill were not sufficient for the military. And there is also the fact that passing something weaker in California would undermine efforts to get stronger protections in Washington. Signonsandiego.com reports:

In Washington, Congress is considering imposing a 36 percent interest rate cap as part of a broad Department of Defense Appropriations measure. Final action is scheduled this month.

Read more: Weakened payday-loan measure fails

With all this noise about payday loans being bad, you are probably wondering if we need something like that. The answer is: whenever an unexpected situation arises and you cannot resort to any other source of finance because you don’t have enough time to go through regular loan procedures, a payday loan may seem a blessing. Americanchronicle.com reports:

There are many common situations that may happen and catch you without enough money to solve it. Unexpected expenses, running out of cash when your payday is many days away, medical bills, legal fees, medicine, an urgent car repair, etc. In any case the need for cash is so pressing that the only choice is to apply for a payday loan.

Read more: What to do when you need Cash Fast