Tuesday, March 14, 2006

Nine Steps to Avoiding Predatory Lending

By Desmond Carlisle
Payday Loan Writer

Payday loan companies are often referred to as financial predators, taking advantage of the vulnerable. While lenders range in quality, as with any industry, there are clear signs of abusive lending in the payday advance business. Keep your eyes open for these signs and make sure you don’t get victimized. From the Center For Responsible Lending comes a list of Nine Signs of Predatory Lending:


– Out-of-state banks violating local state laws. Federal banking laws were not enacted to enable payday lenders to circumvent state laws, but a lot of corporations use them to avoid possible legal entanglements.

– Triple digit interest rates. Credit cards are known for their high APRs, but payday loan companies typically charge fees equal to 400 percent per year and higher. Lenders, by contrast, contend that their interest rates are necessary to counter the potential loss.

– Short minimum loan terms. About 75 percent of payday loan customers are unable to repay their advance within two weeks — the industry standard — and are forced to roll it over. Additional charges apply in such cases. In contrast, small consumer loans have longer terms, such as six months.

– A single balloon payment.
Unlike most forms of consumer debt, credit cards included, faxless payday loans do not allow for installment payments to be made during the loan term. In many cases, the borrower must pay the entire loan back at the end of two weeks and cannot pay a partial sum.

– Loan flipping. Also known as extensions and payday loan rollovers, this refers to the practice of companies making multiple loans to cash-strapped borrowers. Approximately 90 percent of the payday advance industry’s revenue growth comes from issuing additional, larger loans to repeat customers.

– Borrowing from multiple lenders. Unable to make partial payments, many consumers get a loan from one payday cash loan firm to repay another, which can lead to even bigger monetary problems and a cycle of renewal fees that’s hard to ever break free of. Never do this if you can avoid it.

– Mandatory arbitration. Many payday loan firms will eliminate a borrower’s right to sue for abusive lending practices by including a clause to that effect as per the initial agreement. In this case, payday loan agencies exhibit even more control over the consumers they are supposed to help.

– No concern for the borrower. Avoid a payday lender that blindly encourages consumers to borrow the maximum allowed, regardless of bad credit history or their personal circumstances. Even if the borrower can’t repay the loan, the lender gets collects multiple renewal fees. Often times a payday loan is not in a consumer’s best interest, but the company won’t tell you that.

– The deferred check mechanism. Consumers are often required to write a post-dated (deferred) check to cover a payday loan at the onset. When they can’t repay it, they may be assessed multiple late fees and check charges, and even face criminal prosecution for writing bounced checks.


REMEMBER: If and when you are in the market for payday loans, protect yourself. Don’t make any sudden decisions that you will regret. Use caution with any payday lender to guard your consumer rights, and if you can, consider alternative financial solutions altogether.

5 Responses to “Nine Steps to Avoiding Predatory Lending”

  1. Payday Loan Times » Blog Archive » Military Payday Loans Target Those Most at Risk Says:

    […] In many ways, soldiers are ideal targets for these resources. They have a steady income from the government of just $1,200 per month for new recruits. At deployment time, when military families are faced with extra expenses at home and abroad, they’re more vulnerable to the promise of quick cash from payday lending companies. […]

  2. Payday Loan Times » Offers For Cheap Payday Loans: To Be Believed? Says:

    […] Avoid predatory lending. Like any industry, there are reputable payday loan firms and ones that should be avoided at all costs. Learn the tricks to watch out for by following the link we have provided. […]

  3. Payday Loan Times » Bill to Legalize New Short-Term, High-Interest Auto Title Loans On the Table in Louisiana Says:

    […] The group is asking its social service network to make calls to lawmakers opposing the bill. Meanwhile. Ira Rheingold, Executive Director of the National Association of Consumer Advocates, said that title loans are a form of predatory lending. […]

  4. Payday Loan Times » N.Y. Gubernatorial Candidate Urges State to Step Up Fight Against Abusive Lending Says:

    […] Predatory lending is also a huge problem in New York State, despite efforts to quell it. Assembly leaders called for hearings this summer in Buffalo to examine such issues and determine what changes are needed. […]

  5. Okinawa Incidents Prompt Defense Department to Urge Stronger Fight Against Payday Lenders - Payday Loan Times Says:

    […] Active armed service personnel are three times more likely than civilians to take out a payday loan, according to the Center for Responsible Lending, an organization opposing predatory lending. […]

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