Dirty little secret about payday loans – annual percentage rates of 650%.
by Kevin Wack OCT 2, 2014 5:22pm ET
According to an article in the American Banker, Consumer Finance, “the Pew Charitable Trusts has conducted the most thorough assessment to date of the online payday loan business, and its findings, released Thursday, are scathing. The report, which relied on a nationwide survey of borrowers, focus groups and data obtained from numerous sources, concludes that fraud and abuse are widespread in the Internet market.
‘It’s clear that basically the kind of self-policing of online lenders has not worked,” said Alex Horowitz, research manager at Pew.’
If a consumer signs up online for a loan, there is a good chance that the lender will automatically roll over the principal, trapping even prudent, well-intentioned borrowers in a cycle of debt.
Borrowers’ personal information may get sold again and again, and if they fall behind on payments, they may face illegal threats of arrest.
Pew Charitable Trusts, which has released three previous reports about payday lending, is a sharp critic of both online and storefront lenders. But the most recent report focuses on ways in which online lenders are different from brick-and-mortar stores.
Among Pew’s findings: nine out of 10 Better Business Bureau complaints about payday lenders involve online operators, even though online loans only make up about one-third of the total market; 30% of online borrowers report being threatened by a lender or debt collector; and online payday loans typically have annual percentage rates of 650%. Online payday lenders often portray themselves as financial-industry pioneers, but like a lot of corners of the Internet, this one has some dirty secrets.
If a consumer signs up online for a loan, there is a good chance that the lender will automatically roll over the principal, trapping even prudent, well-intentioned borrowers in a cycle of debt. Borrowers’ personal information may get sold again and again, and if they fall behind on payments, they may face illegal threats of arrest. And it is not just lenders who use the cover of the Internet to engage in questionable conduct. A sizable percentage of online borrowers seem to have no intention of ever repaying their loans.”
Taking out payday loans is ALWAYS a sign of extreme financial distress.
Once money is borrowed it is typical the loan is rolled over again and again. This means the borrower is faced with an increasing loan while their income cannot keep pace. A circle of despair – some people take out payday loans to pay payday loans. Seek help – if possible change your spending habits; look for ways to increase income and decrease expenses, find financial counseling (some free information on-line at Dave Ramsey or contact my office).