Newswire:

Preying On Broke Americans

Hundreds of thousands of Americans are falling behind on mortgage payments. More and more are unable to afford staples such as food, heat, gasoline. And so more Americans are turning to predatory lenders to get them out of a tight spot, not realizing they’re jumping from the frying pan into a very, very hot fire. [Reuters]

“While figures are hard to come by, evidence from nonprofit credit and mortgage counselors suggests that the number of people using these so-called ‘pay day loans’ is growing as the U.S. housing crisis deepens, a negative sign for economic recovery.”

What is a predatory loan (also known as a payday loan)? Predatory lenders go after the financially weakest – the millions of Americans who have no savings, who live paycheck-to-paycheck, the elderly, the military. The predator advertises cheap loans fast.
Borrowers bite the hook and come in; they get cash and need to show nothing more than a pay stub and a blank check. The borrower hands over a post-dated check; the lender gives them cash and charges a fee (usually somewhere from $15 to $30.) If the borrower can’t pay the full amount in 2 weeks, the lender allows the loan to “roll over” …and charges another round of fees.

Payday loans average about $350 and will cost anywhere from 390 percent to 780 percent of that amount thanks to annual interest rates. Here’s the math, courtesy of the Center for Responsible Lending: The average guy who borrows $325 will pay $1,105. [DOD Report on Predatory Lenders and the Military]

The Center for Responsible Lending says payday lenders issued more than $28 billion in loans in 2005. And the recent economy has driven that number way up.

Predatory lenders know how to get their victims. Check out Ohio, a state reeling from the housing crisis. At the end of the fourth quarter, 3.88 percent of housing loans in the state were in the process of foreclosure. And the payday lenders began to spring up like evil little mushrooms.

In Ohio, there are currently more payday lenders than McDonald’s, Burger Kings and Wendy’s… combined.

Robert Frank, an economics professor at Cornell, says payday loans are like “handing a suicidal person a noose.”

Frank: “These loans lead to more bankruptcies and wipe out people’s savings, which is bad for the economy.” He blames all of the banking de-regulation in the nineties.

Payday lenders can charge up to 400 percent interest on short-term loans. In 2007, Congress put a 36 percent cap on any loans made to military members (another favorite target of these predators.)

Thirteen states (and the District of Columbia) have similar caps in place. States like Ohio, Virginia, Arizona, and Colorado are now trying to follow suit for other Americans.

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Comments
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1. 1. a “predatory loan” is not also known as a payday loan.

   2. Your sources (CRL) are biased and inacurate (they also operate a credit union – the main competition for “payday loans” = overdraft “protection”)

   3. Payday Loans, Title Loans, “subprime” credit cards, Pawn Loans and bailouts from the Federal Government for the biggest banks in the country are done at the borrowers instigation. The payday or other personal-option loans are not usually the cause of the problem, but next steps…

   4. You (and the rest of the air-headed media) are not getting to REAL questions, causes or answers. The U.S. system of corporate greed, welfare and follow the dollar thinking are the cause.

   The lack of support for lifetime education, health care (not just pills and operations) and inexcusable government action (lack of or paid-for) are just the starting point. “We the People” are a bunch of !@#% that will lose our lifestyle and country because of apathy.

   — Bob - Mar 25, 07:33 AM - #
   
   

2. Oh, pity me because I have no money! This is so sickening! I am not a rich man, and I use payday loans on occasion, but I am not complaining about it. I know that if I wanted more money, I could work harder, go back to school, or get a second job. We need to stop blaming the payday lenders for everyone else’s irresponsibility! If I borrow 100 bucks from a friend, and am not able to pay it back, I don’t blame my friend for lending me the money! That is just stupid. So why are we blaming our payday lender friends for providing a great service? In a recent article by ex senator and presidential candidate George McGovern, he says, “[p]ayday lending bans simply push low-income borrowers into less pleasant options, including increased rates of bankruptcy,” Mr. McGovern rightly poses the question: “Why do we think we are helping adult consumers by taking away their options?”
   Later in the article, he says, “[t]he nature of freedom of choice is that some people will misuse their responsibility and hurt themselves in the process. We should do our best to educate them, but without diminishing choice for everyone else.”
   This is how we need to look at this topic. Leave the payday loan stores alone and look for other options. Instead of taking away payday lenders, beat them at their own game by giving consumers even more alternatives!

   — grant - Mar 27, 02:44 PM - #