New Study Shows Predatory Lending and Pay Day Loans Cause Serious Debt, Has Little Regulation
The Center for Responsible Lending released a study recently on predatory lending and pay day loans, and found that the fees alone cost American families $3.4 million per year. Despite state efforts, predatory loan companies remain one step ahead of the game, and few people caught in the cycle know how to get out.
Payday Loans can come from banks, storefronts, or even from the booming online industry. These predatory loans are billed as short-term credit options, to help with small amounts of debt to major purchases like houses or cars. Individuals who would otherwise be rejected for a regular loan often turn to payday loans for help, but because they cannot pay off the high interest and fees on the loans, they quickly become trapped in a debt cycle that spirals out of control.
The predatory lending industry boomed in the 1990’s, and has not slowed down since. In fact, many predatory loan groups are moving online to avoid state regulations.
“More and more states are cracking down on payday lending and it’s a lot easier to hide online than it is to hide in a storefront,” said Ed Mierzwinski, consumer program director for U.S. PIRG, an advocacy group.
However, many predatory loan groups and payday lenders argue that they offer a vital service to Americans who would otherwise have no credit or financial assistance.
“Most consumers don’t have the ability to get $500 or $600 in an emergency through their banks or credit unions,” said Peter Barden, spokesman for the Online Lenders Alliance, a trade organization “Credit card limits have been reduced, equity loans have been reduced, so people are increasingly looking to alternative financial services companies for short-term credit. And like with any other industry right now, they’re looking online.”
Currently, predatory loans and payday lending are illegal in 15 states, and 9 other states enforce strict rules capping the interest rate on the loans. California, for example, caps interest rates at 30% for consumer loans less than $2,500.
However, the internet has allowed many predatory loan companies to circumvent such laws. Castle Payday, for example, advertises an effective 888 annual percentage rate – that means a 14-day $500 loan will cost the borrower $675.
Predatory loans are often associated with low-income families, who need a few hundred dollars between paychecks to survive. However, anyone can be the victim of predatory lenders, including circuit court judges.
Greenbrier County Circuit Judge James Rowe, for example is suing Aurora Commercial Corp. (formerly Aurora Loan Services, Inc.) and Nationstar Mortgage, LLC for predatory lending practices. Reportedly, in 2005, Judge Rowe and his wife took out a loan with TM Capital Inc for $626,250, to purchase some land in South Carolina. TM Capital, at some point in 2012, transferred the loan to Aurora Loan Services, who raised the interest rate from 4.625% to 6.625%, and transferred the right to collect payments to Nationstar. When the Rowes sent a letter to Nationstar asking for a recalculation of the interest rate since 2010, the company sent the couple a notice of default. The Rowes responded by filing a predatory loan lawsuit.
“You absolutely have no idea who you’re dealing with when you take out a loan online and you agree to let somebody put their hand in your bank account,” said Mierzwinski, the consumer advocate with U.S. PIRG. “Please step back and think: Is there any other way I can get this money to meet my bills? Because once you go into high-cost payday lending, whether online or in person, it’s not something you do once. It’s usually something you do again and again and again.”
The Strom Law Firm Can Help with Predatory Loan Lawsuits
If you believe you have entered into a loan agreement where the terms and conditions that appear predatory, it is important to act quickly to reduce the risk of harm. Call the Strom Law Firm, LLC today for a free consultation regarding your predatory loan case. 803.252.4800.