Part I: Debt Tricks, Scams And Practices: Payday Loans

For millions of cash-strapped consumers, businesses that claim to want to help you save money or get you out of debt only end up getting you trapped in a cycle of high amounts of debt. Here are some common tricks and scams to watch out for when it comes to payday loans, also known as loan advances.

Payday loans are short-term loans that offer the means to cover purchases or pressing needs that have triple-digit interest rates and usually have to be repaid on the next pay day. For example an individual who borrowed money from a payday lender to help cover an $800 car repair before long would be shelling out thousands of dollars in fees.

Similarly title store loans are loans where the title loan company lends you several thousand dollars at high interest rates and keeps a security interest in your title, typically in your vehicle. Most title loans require you to make monthly payments for entire loan amount for a small number of months. If you fail to make this payment, the company repossesses your vehicle.

Consumer advocates warn consumers against using payday and title store loan services because they are short-term solutions that come at a very high cost. These lenders have automatic access to a borrower’s bank account; they can collect even when a borrower is stretched thin. For the payday or title loan lenders, they prey on a vulnerable borrowers that are behind on existing bills because these customers will be stuck, and, eventually, for these lenders be profitable for their businesses.

In fact repeat borrowers are the heart of the payday business. Government research has found that 4 out of 5 payday borrowers had to renew their loans, typically before their next paycheck. And 1 in 5 renewed at least seven times, with the accumulated fees often exceeding the amount originally borrowed[1].

If you have already taken out a loan, perhaps the best option is to negotiate a repayment plan. If you have not paid off a payday loan after 35 days, you can ask the payday lender for a repayment plan. The repayment plan will give you at least 55 days to repay the loan in installments with no more finance charges or other charges of any kind. If you and the payday lender agree, the repayment plan can be extended even longer, to 90 days[2].

Most importantly, you must remember that failing to pay a loan is not a criminal charge. If there are scammers trying to use intimidation to trick their victims into giving them money contact the local law enforcement and file a complaint with your State Attorney’s office. Do not trust a person or company that tells you to transfer your property deed or title to their company. More importantly, never sign a quitclaim deed unless your own independent lawyer specifically tells you to sign.

Lastly, tell debt collectors to only contact you by mail and to provide written proof of the debt in question. The Fair Debt Collection Practices Act requires debt collectors to stop calling if they are asked to do so. Remember scammers often claim to represent official-sounding law enforcement agencies or financial institutions. It is best to hang up and call the institution in question directly. If you are unsure whether you are delinquent on a payday loan, contact the lender directly to inquire about the status of your account.

Syeda M. Madani, Esq. is an attorney with Amal Law Group, LLC. Email her at smadani@amallaw.com or visit their website at www. amallaw.com

DISCLAIMER: This article is written for informative and educational purposes only. This article is not legal advice and does not create an attorney-client relationship between the author and any reader.

[1] See http://www.consumerfinance.gov/newsroom/cfpb-finds-four-out-of-five-payday-loans-are-rolled-over-or-renewed/

[2] See The Payday Loan Reform Act, at 815 ILCS 122/4-30.