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“Payday Loans: Quick Approval to Long-Term Debt?”

アメリカ 弁護士 法律事務所 法律  給料日ローン:簡単な承認から長期債務へ?In these tough financial times, having an extra bit of cash can add some important breathing room. Payday loans (sometimes called check loans, cash advances, or quick cash) can be attractive to individuals facing financial troubles. Although these quick loans may help some consumers, for others, they only create even more headaches. And it is the experience of those frustrated customers that has caused the federal government and a handful of states to take a critical look at this growing area of lending.

A relatively new loan type, payday loans offer consumers a quick influx of cash. In the last decade, payday loans have flourished because people facing a financial bind find them to be a convenient alternative to bouncing checks, paying late fees on credit cards, and even having their utilities shut off. To apply for such loans, consumers usually have to show only a pay stub or some other proof of regular income (such as Social Security); no credit checks are involved. Then the consumer gives the lender a pre-dated personal check for the amount of the loan plus a fee (usually around $100) and receives the loan money.

At the end of the loan term, which is usually two weeks, there are three possibilities: 1) the lender cashes the check and receives the full loan amount plus the fee, 2) the lender tries to cash the heck but the consumer doesn't have enough money to cover it, resulting in a bounced check that will cause the borrower to be hit with fees from both the bank and the lender, or 3) the consumer refinances the loan and pays additional fees. It is this third option that gets most consumers in trouble. Referred to in the industry as "rolling over" the loan, this process allows consumers to extend the loan into future months until they hopefully will have the ability to pay off the entire loan amount all at once. However, each time a loan is rolled over, the consumer must re-pay all fees associated with the loan, which can sometimes end up being double the original amount lent.

It is these sky-rocketing cumulative fees, along with the fact that many of these loans involve annual percentage rates of more than 400 percent that has been the source of much of the worry over payday loans. In some cases, these harsh loan terms have resulted in legislation aimed at creating consumer safeguards. A few states, including New York, have enacted laws effectively banning payday lending altogether. Arkansas has recently moved to shut down payday lending within the state, relying on a unique clause in its state constitution that bans lenders from charging an annual interest rate higher than 17 percent. Congress passed a federal law in 2006 that imposed limits on the ability of such lenders to reach out to military personnel. However, this trend is by no means national, and in many states, payday loan stores outnumber fast food chains.

If you or a loved one are considering a short-term loan of any type, it is important to put as much thought and research into this as you would a large mortgage or other long term loan. In order to avoid falling victim to any type of lending practice, payday or not, try to work with a lender you trust (or find one your family/friends trust). And remember, if it seems to good too be true, it probably is.

What to do if you or someone you know has an unfair payday loan?

  • If you have multiple high-interest loans, consider working with a trusted lender to assess whether consolidating them makes sense for you.
  • File a complaint with your state attorney general's office, state consumer protection agency, or banking department.
  • Contact your state and federal legislators-urge them to take action to ensure fair lending in your state.
  • Talk to your lawyer about possible recourse.

(Summer 2008)