What Happens When They Can't Pay Their Payday Loans? |
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Whether customers are aware of the risks
concerning payday loans is better
explained as whether they realize the difference between a loan and an advance on paycheck . Customers often get into it initially with hardly any idea of what it's all about and without considering how to repay. It's too late by the time realization dawns. Due to frequent usage of the term payday advance for payday loans in marketing in the industry, many are unable to understand that it is a credit transaction. Some are also unable to understand the role of the law in favoring or forbidding inability to make timely payment to complete the credit transaction. Usually there is no crime in defaulting on a loan. But the security for payday loans is a post-dated personal check held by the lender until the payment is deposited. Since states outlaw making checks with the awareness of insufficient funds, payday loans customers run the risk of criminal prosecution. Another realization consumers may lack is the right they give the payday loans lender, to electronically debit their checking account to cover fees and interest payments, or that they have the option to deny it. The Electronic Funds Transfer Act forbids electronic access to an account as a condition for credit. It's an everyday affair and a question of consent. A customer can call any time to stop the lender from electronic debits. But few know this. Lenders gain from keeping it a secret. Payday lenders at times may insist on mandatory arbitration of payment disputes but a majority of customers lack this crucial knowledge. They are also not likely to realize the possibility of their paycheck being garnished in case of failure to make the payday loans payment. Most associate garnishment with child support. A survey recently discovered that payday lenders are constantly using unfair and illegal collection tactics. Payday loans customers were inflicted severe collection practices that are not imposed on defaulting customers of traditional credit options. Inappropriate action comes in four categories: --Harassment through phone calls to customers, their employers and relatives --Threat of violence when unable to repay the payday loans --Extorting substantial damages from customers --Threat of criminal prosecution against defaulters of payday loans A set of best practices was developed for the payday lending industry, among which one is that debt collection should be fair and lawful. However the survey concluded that even if technically legal, it is not reasonable that a victim's compensation should justify treble damages. In the states where victims of bad checks are favored, it may be fair. But the majority of payday loans customers have no other alternatives for a loan and payday lenders don't bother with preloan assessment of the debtor's ability to repay. To fully comprehend the evil about payday loans one needs to understand some basic principles of lending. Prime lenders are major financial institutions loaning money to those not considered too much of a risk. With good credit histories these consumers have steady income and collateral. Thus the best interest rates are granted. Tragically a lot of payday loans consumers are not occasional onetime users paying $15 for a $100 loan. Rollovers occur where borrowers unable to repay, renew the loan for another one with extra fees. They lead to a vicious cycle of unending debt. California with more payday lending outlets than McDonald's or Burger King Restaurants has an average payday lending customer availing 11 payday loans a year. This privilege costs the payday loans customer an APR or annual percentage rate of nearly 474% nationally, research revealed. Due to absence of assessment of consumers' ability to repay the payday loans and due to the uncertainty of post-dated checks, payday lenders don't exactly fit the description of crime victims entitled to treble damages. Payday loans are promoted as the quick and easy way to cash. Qualifying only requires employment for a specified period of time with the same employer, a personal checking account and a pay stub and bank statement. In most cases credit checks and other inquiries into the ability to repay are not routine procedure. |
