Pay Day Loans – Loan Sharking Reinvented. By Dave Maillie We see advertisements for quick cash loans every day. "Need quick cash? Want a loan on your paycheck? Need to pay some bills and get creditors off your back?" These loans can be pay day loans, cash advance loans, check advance loans, post-dated check loans or deferred deposit check loans. Typically the borrower rights out a check for the amount of the loan plus a fee (not post dated as that is illegal). This fee can range from 10% to 40% of the loan and the borrower usually has two weeks to pay it off in full. Most can’t pay it off in time and end up owing, in some cases, more in fees than the amount of the original loan.
Some states like South Carolina have placed limits on the fee amount allowed. South Carolina law limits this fee to 15% of the amount borrowed. If you were to look at this in a yearly APR it would be 390% interest. Most states have usury laws which limit a yearly rate to 30% or under on most loans. Currently Pay Day stores slip by by stating that loans are paid off in 2 weeks so no violation has occurred and that they are providing a much needed service to people that have no where else to go.
The actuality is that most of these borrowers cannot repay on time and so they are forced to pay the interest and take out another loan to cover the principle. And they pay dearly for this. Currently the average borrower in South Carolina takes 10-15 loans to payoff their original loan amount. These statistics are similar in most other states. Which means the borrower will pay $400 - $500 in loan fees on a $400 loan. This is absurd usury and should be illegal as it is not helping anyone except the lender. It is predatory lending at best that just gets borrowers in deeper debt than before.
“Some will say, that little man has to have somewhere to go,” said state Rep. Eldridge Emory, “Butif he gets money this way, he’s just digging a hole deeper and deeper, and he’s not going to get out.”
Several states like North Carolina have currently banned this form of predatory lending. Pay Day and similar quick cash loan schemes are not allowed
in North Carolina. Other states are beginning to consider legislation and to put laws in place that will further control and possibly even curb pay day loans altogether. Still more needs to be done. Pay day lending companies have high dollar lawyers and are probably lobbying your state politicians right now to protect their interests. If enough people complain the states will all have to do something about this predatory form of lending.
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