Local Payday Loans: Worst Idea Ever.
So you’ve made the mistake of taking out a local payday loan. Marks Law Firm can help stop the vicious cycle you now find yourself in. I will address briefly how these loans work and the repercussions you may face as a result of taking out a payday loan. Payday loans are short term loans with incredibly high interest.
Circumstances where payday loans may make sense are extremely rare. Typically payday loans are for periods of one month. Simply stated, if you cannot afford to pay expenses and you take out a payday loan to cover bills, YOU WILL find yourself in an even worse position once your next pay period comes around and the payday loan is due. This is how the cycle begins. Payday loans are designed to trap the borrower into a cycle where new loans must be taken out each pay period or each month.
How it works:
- visit a local payday loan establishment to obtain a short term loan for say $500;
- you write a check for the $500;
- the payday loan establishment will loan you $500 but only hand you something in the neighborhood of $450.00 (they keep the remainder of the money as fees);
- the due date is typically your next pay date or a pay date in the near future;
- go to the payday loan establishment on the due date and pay the original $500 back in cash;
- if you don’t show up to pay the loan back the check you wrote for $500 will be submitted to your bank for payment;
- if you do not have enough money in the bank when the check is submitted, your bank will charge you a fee in the neighborhood of $25 each time it is submitted;
- the payday loan establishment will attempt to process your check once a day until they are paid. This means that every four (4) days this special loan will cost you an additional $100. This does not include all the additional fees that will arise if you have other checks outstanding that bounce.
Don’t worry about the above happening. The payday loan company loves you and only wants the best for you. They are here to help you and this is how they will do it (CAUTION – the following is nothing more than a legalized way of ripping you off!):
- Odds are good that you don’t have the money to pay the loan back because your next set of bills has come due. You need the money you just got paid to pay those bills;
- You contact the payday loan company and tell them about your problem. They tell you that they need to be paid and if they don’t get paid they will submit the check and it will cause you more trouble (see above);
- The payday loan company tells you that you can take out another loan to cover the first loan that has now come due;
- You say okay because you need your money to pay the bills. They tell you to come in to the store;
- You go into the store and they now loan you $550 to cover your first loan of $500 but they keep $50 as fees.
- You write them another post-dated check for the date of your next pay period for $550.00;
- Your next pay date comes around but again you need the money to pay the bills that have come due;
- You call the payday loan company and the cycle starts all over again; EXCEPT
- Now they want you to start to pay the fees each time and they just keep charging you more and more fees.
Most people don’t realize it but because this loan is for a short period of time, typically between a few weeks to a month, the interest rate amounts to somewhere between 200 and 500 percent!
Sounds like fun, right? So what happens now that you want to break the cycle? Call your bank immediately and cancel any outstanding checks to the payday loan company. Pay the cancel check fee. Contact the payday loan and advise them that you will not be making the payment and that you’ve cancelled the check. If you are not going to file for bankruptcy and discharge the payday loan amount due, you can usually negotiate payments to pay off the loan with the payday loan company if you are unable to pay it all at once. This may of course include an additional fee. If you fail to cancel the check with your bank and think that simply calling the payday loan company and requesting they allow you more time to pay it off or request payments I fear that you will be sadly mistaken. Once again, typically they will attempt to run the check through and if unsuccessful initially, will continue to attempt to run the check. This will typically result in multiple overdraft fees with the bank not to mention cause serious problems with other automatic withdrawals.
What if the payday loan company threatens to prosecute for bad check or check fraud? Contact Marks Law Firm immediately and schedule a consultation with Ashley. While writing bad checks to other businesses such as the grocery store or gas stations, etc. can result in possible bad check prosecution, most payday loan companies are prohibited from threatening this type of recourse. Many payday loan companies are members of national organizations which prohibit payday loan companies from seeking bad check prosecution.
Online Payday Loans: Selling Your Soul Would’ve Been Cheaper and More Pleasant.
I am going to admit this is difficult for me. There are no rules or boundaries when it comes to online payday loans. I tend to lack sympathy for clients who feel they’ve been slated or ripped off by these loans. You’ve been warned. As an additional note – I have never seen an online payday loan company that has an actual address. This makes tracking them nearly impossible.
Most, if not all online payday loan companies fail to register to do business in the State of Iowa. This means that if the loan is not paid back the company cannot legally seek a civil judgment for repayment of the loan. So how do these companies seek repayment from a borrower who does not pay back the loan? They hire illegal and fraudulent debt collection companies who employ horrific and coercive collection practices. Because these companies are illegal and typically are located in countries such as India, they do not care about your legal rights or their actions. These companies will call your employer, friends and family members relentlessly. They will threaten to have you arrested, issue a warrant, claim that they are part of the department of investigation or legal or judicial agency. This is false. YOU WILL NOT BE ARRESTED! These companies make forceful threats in an attempt to acquire bank account information and payment quickly before the borrower realizes the activity is illegal. If they do obtain bank account information, more times than not they will continue to withdraw money from a borrowers account many times over what the original loan amount was for. While they cannot actually have you arrested or charge you with check fraud, they can cause serious frustration and problems not only with loved ones but also with your employer. If this is happening to you, please contact your Attorney General’s office. There are also Federal Trade Commission forms available online for filing a complaint.
Do not overlook the additional threat of identity theft. When someone takes out an online payday loan, the companies typically require the disclosure of private information such as a person’s social security number, address, date of birth, mother’s maiden name, etc. Some even require bank account information up front in the event that the borrower will not repay the loan. This inevitably results in the company withdrawing money from a person’s bank account many times over without authorization. All of a sudden the borrower is not able to get in contact with anyone from the company. Many times even a consumer protection attorney cannot pursue illegal debt collection suits against these companies because they are extremely difficult to locate and do not typically pay out on judgments.
Bottom line: Do not take out online payday loans! Again, if this is happening to you and you have provided bank account information, meet with your bank and determine how to stop payment to the payday loan company or close your account. Also, please contact Marks Law Firm for a free consultation to discuss your rights and any possible recourse you may have.