An Economic Sign of Trouble
Getting caught in the payday loan trap is common In today’s economy. With gas prices approaching $4.00 per gallon, food prices rising at record rates and health insurance costs rising as much as 20 percent in one year, there is one relatively new industry that is flourishing by feeding off the financially challenged. The payday loan industry is experiencing tremendous growth in recent years. Virtually unknown only several years ago, the loan stores are opening up almost daily in every low and middle income neighborhood in the states where they are legal. The internet has virtually thousands of sites where anyone, with a job and direct deposit, can get a loan deposited directly into their account with no credit check. The internet lenders are generally more predatory in nature than their storefront counterparts as they are not regulated and can charge interest rates that would be usurious and illegal in any other financial industry. Many of them allow customers to rollover their loans until the next pay period for a fee rather than paying it off in full. Some actually make it extremely difficult to pay in full by requiring 72 hour notice by fax prior to the ACH withdrawal date. They know that most people do not have faxes in their homes and will generally will not remember to do it. For example, if George takes out a 500.00 loan on the internet and agrees to pay back 600.00 on his payday by allowing the payday loan company to ACH debit his account, he will receive an email stating that his loan is due on the 15th. This email is sent on the 11th and says, if he wishes to pay the loan in full, he must fill out and email, or fax, the attached statement within 24 hours. It is Sunday and he does not see the email until Monday morning. He is now at work and tries to fill out the form on line to email back but cannot type in the blanks. He does not want to print it for fear of his coworkers seeing it so he waits until he gets home. Now it is too late. The company will take the 100.00 from his account and he still owes them 600.00 on the next paydate. The problem now is his rent is due on that date also.
The 1st of the month is quickly appoaching and George begins hearing a noise from the front brakes in his car. He takes it to the shop and is told that he waited too long and they have to cut the rotors and replace the pads. They also disovered his brake lines to be dangerouly worn, Total cost 375.00. He has no choice but to pay. Now, between rolling over his 600.00 loan again and subracting the cash for his repairs, George has found himself short of the rent. So what does he do?. He goes back on the internet antd takes another loan from a different company for $300.00 more. Now he owes 900.00 with 300.00 due on the 15th from the second loan and 600.00 also due the same day on the first loan. However, this time, he realizes that the 600.00 has to be paid in full as only two rollovers are allowed and the 300.00 he can rollover at a cost of 60.00. There goes most of his check leaving him short of his utility bills and car insurance so he starts to panic and takes a third loan for 500.00.
As a moderator and counsellor on a prominent website dealing with debt, it is not uncommon to see guests who come there looking for help with as many as a dozen payday loans or even more. Some of them have paid as much a $1000.00 on a $300.00 loan. They are ashamed and scared to a point of insomnia and can no longer focus on anything, including their jobs. One person, as I learned later, had become suicidal. It is a very difficult situation but there is a way out. The poverbial light at the end of the tunnel does exist..
Escaping the Trap
The very first thing a person should do to get out the the payday loan trap, is to list all the loans they have by category (internet or storefront) the amount borrowed from each and the total amount paid to each, including interest and rollovers. The next thing to do is to check the lending laws of the state you live in to determine the maximum interest allowed and are rollovers permitted. Contrary to what the lenders will tell you, most states require lenders to be licensed in the state, regardless of their geographic location, and must abide by the laws of that particular state. Most, but not all, internet lenders are not licensed anywhere and many are located offshore with only mail drops in the US. Wilmington Delaware has a huge number at a Mail Boxes Etc.there due to the the states soft lending laws. A helpful site for this info is http://www.paydayloaninfo.org/.
After you have determined the above, you must see if any of them are members of the CFSA, a membership organization of payday lenders. These will almost always be the storefront lenders. Their members are required, under the membership rules, to set up payment plans for those who are in trouble. You must however request a plan before you default. Because the storefronts are legal operations, and abiding by state laws, you are required to repay your loan and interest or they can sue you for the amount plus attorney fees and court costs. Contact them and tell them you need to make arrangements and they will usually be obliging..
The next step out of the payday loan trap is to close that checking account before the next pay date and ask your payroll department for a live check for a while until you feel it is safe to open a new account. Do not let any of the internet lenders know in advance of your plans or they will hit your account immediately. You must then send a letter to each of the lenders revoking any wage assignment agreement you may have signed and give a copy to your payroll department. Wage assignments are not garnishments and can be legally revoked by the signer at anytime. The lenders will still send the assignment to your employer, regardless of the revocation, but at least you will not have your paycheck handed over to them. You must also check with your bank to be sure they will not force open your account if an ACH withdrawal comes through after you close it. Once you have done all this you have your life back and can make the internet lenders deal with you on your terms and not theirs. Remember to never give them any new account info or card information. They can clean you out. Pay them only by money order, wire or preypayed debit card.
You have at least a moral obligation, when caught in the payday loan trap, to pay back what you borrowed plus interest under the laws of your state. Make it clear to them in writing that this is what you are paying and not a cent more. You can expect nasty phone calls, threatening you with arrest at your job and all sorts of other illegal nonsense, of which they cannot follow though. Do not allow them to intimidate you. Stand your ground. Some will turn you over to third party collectors. If that happens you must send the collector a debt validation letter asking them to prove that the debt is yours, how they arrived at the amount and that the lender is licensed in your state. Nine times out of ten you will never hear from them again. Remember if an internet payday lender is illegal in your state they will not have the power to collect there and they know it. They will resort to intimidation as their only recourse. The few that are licensed will be much easier to deal with and will usually come to a settlement agreement with you, For those who choose the path of harassment, send them certified, cease communication letters and do not hesitate to file complaints with the Better Business Bureau, the Attorney General in your state and the state where they say they are located, the financial regulatory agency of your state and the FTC.
Remember, if you are ensnared in the payday loan trap, that most payday lenders are predators and their sole purpose for existence is to suck as much from their financially vulnerable victims as is possible. Escaping them is traveling an avenue that is difficult and stressful but it is the only road that will lead to freedom from the snare that that entangles so many in this era of economic turmoil.