Wfi the dangers of payday loans 2.11Presentation Transcript
The Dangers of The True Costs
Startling Statistics: According to research, people who use payday loans are twice more likely to file for bankruptcy than those who are turned down for a payday loan. (cont’d…)
Startling Statistics: In the United States alone payday loans caused so much harm to those who could least afford it that Congress banned lenders from lending to family members of military personnel in 2006. They also capped the maximum interest rate allowed at 36%. New York banned payday loans altogether . Florida is now strictly enforcing new payday loan laws that went into effect in March 2010 to protect consumers. (cont’d…)
Startling Statistics: At the end of 2006, the Center for Responsible Lending reported about 25,000 payday loan outlets in the United States and annual loan volume of at least $28 billion, with almost $5 billion in loan fees paid by consumers. Industry analysts estimate 2009 annual loan volume at stores was $30.3 billion, with roughly $4.8 billion in loan fees paid by consumers and 20,600 stores in operation. The industry estimates 2009 online payday loan volume at $8.2 billion.
And there’s more…. Payday loans cost consumers over $4.2 billion in predatory fees each year. The typical payday borrower pays back $793 for a $325 loan. 90% of the payday industry’s revenues come from consumers who get 5 or more loans in a year. For 2-week payday loans, finance charges result in interest rates from 390% to 780% APR! The first APR is for a fee of $15 per $100 borrowed, the second APR results from a fee of $30 per $100 borrowed. (Cont’d…)
And there’s more…. The fifteen states (and DC) which have banned payday lending, are saving their residents a total of $1.8 billion per year in predatory payday loan fees. There are more payday stores in the United States than McDonald’s restaurants! At the start of start of 2008, industry analysts claimed that about 23,600 payday storefronts in operation!
Understanding Payday Loans Qualifying for a payday loan only requires a bank account in good standing, source of income, and identification. Lenders do not perform full credit checks or see if the borrower can afford to repay the loan. Payday loans are short-term cash loans that you pay back on your next payday. Borrowers write a check for the loan amount plus the finance charge to get cash. Lenders hold the check until payday and deposit the check.
How Payday Loans Work… If you want to borrow $300 until your next paycheck, you’ll write a personal check to the lender for $345 (the $300 you borrowed plus a $45 fee). The lender gives you $300 and agrees to hold your check until your next payday or other agreed-upon date in the very near future. When that date arrives, either you redeem the check by paying the $345 in cash, or the lender deposits your original check. You may also be able to roll over or extend the check by paying a fee to extend the loan for another 2 weeks (not legal in Florida). If you don’t have the money in your account to cover the check you wrote, you could incur overdraft fees for bounced checks.
What Payday Loans Cost… A $45 fee on a $300 loan works out to 15% for a two week loan. That would be about 30% per month. When you consider that even the worst credit cards are typically up to 30% per year, payday loans can get out of hand quickly. It isn’t the initial fee that gets you. If you’re in a pinch paying that $40 or so may save you from even bigger financial issues. But, it’s when you can’t repay the payday loan and have to resort to extending it and rolling it over, which incurs more fees, which mean more interest and compounds the problem. (cont’d…)
What Payday Loans Cost…(cont’d) “Rolling over” the loan can get you into a situation where you’re paying 100s of % per year just to borrow a small amount of money. Please note that Florida law does not allow rollovers on payday loans. The interest rate for 2-week payday loans range from 390% to 780% when it’s considered as an APR (Annual Percentage Rate). It won't take long for the number to get big fast and exceed the amount of the original loan.
The Dangers of Payday Loans… Many people find they’re in no better financial shape when the loan becomes due than they were when they borrowed the money, and they get caught up in a vicious cycle of constantly taking out and extending payday loans, which becomes exorbitantly expensive. The lender counts on the fact that most people won’t have the money to repay the loan plus the fee when they get their next paycheck, and will be forced to extend the loan for an additional fee, creating a snowball effect. Consumers have an average of 8 to 13 loans per year at a single lender. In one state almost 60% of all loans made are either same day renewals or new loans taken out immediately after paying off the prior loan. Every unpaid loan involves a check that is not covered by funds on deposit in the borrower's bank account. (cont’d....)
The Dangers of Payday Loans… (cont’d) Failure to repay leads to bounced check fees from the lender and the consumer's bank. Returned checks cause negative credit ratings on specialized databases and credit reports. Consumers can lose their bank account or have difficulty opening a new bank account if they develop a record of "bouncing" checks used to get payday loans. Some say it fills a need, but there’s a reason most payday loan places are located in low income neighborhoods and target those with bad credit scores. The lenders target people who are likely struggling and already living beyond their means so offering easy money is irresistible.
What this means to YOU as a Payday Borrower… Payday Loans Erode Your Paycheck: Although the payday loan is supposed to help you financially until the next check comes, you will have to use part of that new check to repay the loan, which leaves you with little money left over, and you may have to get another loan. It's almost like working for your payday loan company instead of yourself! (cont’d…)
What this means to YOU as a Payday Borrower… (cont’d) Payday Loan Centers Profit Unfairly in Low-Income Communities: Many payday loans are found in low-income communities, where consumers may not have access to legitimate banks or other loan outlets. Because payday loans also charge high interest rates, if you miss a payment, you're subject to the interest rates and late fees. As a result, payday loan centers profit off low-income families. Predatory Lending
What this means to YOU as a Payday Borrower… (cont’d) It Damages Your Credit History: When you have a past due balance on your payday loan, it goes on your credit report, which then lowers your credit score. When this happens, you'll have a hard time being approved for a car loan, an apartment lease, or a home mortgage.
What this means to YOU as a Payday Borrower… (cont’d) The Poverty Cycle Continues…. When a person is trapped in getting payday loans repeatedly, they have difficulty ending the poverty cycle. Payday loans can be financial drains disguised as temporary relief for working-class residents, and in the end, they may be in a worse situation than before they received the loans.
What this means to YOU as a FLORIDA Payday Borrower… (cont’d) In the state of Florida, consumers are protected! Florida law effective March 2010 does not allow:
Rollovers on payday loans. NO!
Having more than 1 deferred presentment at the same time (statewide database). NO!
Entering into another payday loan within24 hours after terminating any previous payday loan (“cooling off period”). NO!
What this means to YOU as a FLORIDA Payday Borrower… (cont’d) If you are unable to repay the payday loan under the original terms, you must notify the lender prior to the due date. You must also notify the lender within 7 days from that date of a scheduled credit counseling session. Florida law allows you a grace period of 60 days (from original due date) in which the lender cannot charge any additional fees, provided: You complete a credit counseling session by an approved cc agency (like ADC) within the 60-day time period. You comply with and adhere to a repayment plan (DMP) approved by the credit counseling agency. (cont’d)
What this means to YOU as a FLORIDA Payday Borrower… (cont’d) How does the Debt Management Program work for payday loans?
American Debt Counseling’s certified credit counselors propose DMP payments based on the client’s budget.
Clients are encouraged to make more than the minimum program payment.
Clients typically pay back their payday loans within 6-8 months; usually 4-7 months of 300+% on balances of $555 or less.
What this means to YOU as a FLORIDA Payday Borrower… (cont’d) What if….. You don’t provide the 7-day notice, or the 60-day notice? You don’t complete the credit counseling session within the time frame? You don’t adhere to the repayment plan recommended by your credit counselor? You pay the penalty! The lender will deposit or present your check for payment. The lender will pursue all legally available civil means to enforce the debt (criminal charges are prohibited against payday loan borrowers in Florida) immediately following the 60 day grace period.
Alternatives to Payday Loans… There are many ways to raise the money to pay your bills without resorting to the dangers of a payday loan. Most economists simply recommend you cut back on expenses, but if you have a short window of time, you’ll need to call your creditors and ask for an extension. During that extension, do what you can to cut back expenses and raise money by selling off extra stuff you don’t need. If you have to, take a second job until your bills become manageable. Even working sixty hour weeks for a while is better than falling into the endless debt trap of payday loans.
What to Do if You Are Stuck in the Payday Loan Cycle… If it’s too late, and you have already taken out a payday loan, there are things you can do to protect yourself. First, do everything within your power to pay the loan on time, short of taking out another payday loan. If that is not possible, you should check to be sure the lender is registered to transact business in your state. (visit www.sunbiz.org) In many cases, the loan will be forgiven if you catch them in illegal practices. (cont’d….)
What to Do if You Are Stuck in the Payday Loan Cycle… (cont’d) Enlist the help of your state’s Attorney General and the Better Business Bureau. If you have paid more in rollover charges than the original loan plus interest, the law may protect you. In many jurisdictions, lenders cannot charge more than a certain percentage above the initial loan and rollover payments count towards that figure. Contact a non-profit credit counseling organization and enroll in a debt management program to get your debt paid off. Go to www.paydayloaninfo.org and learn more about payday loans and what you can do to get out of the trap.
For more information contact: American Debt Counseling, Inc. A 501(c )(3)non-profit Credit Counseling Organization 14051 NW 4th Street Sunrise, FL 33323 www.americandebtcounseling.org 1.888. DEBT USA
Thank you! www.americandebtcounseling.org 1.888. DEBT USA