Tuesday, January 18, 2011

More Predatory Lending Info and Alternatives

Yesterday's Dallas' African-American Pastors' Coalition sponsored its Annual Martin Luther King Day worship celebration. It was, as usual, an inspirational event. Dr. Michael Eric Dyson was the guest preacher and did an absolutely marvelous job.

In the program, however, was something equally helpful: a page that raised awareness both the threat of and alternatives to predatory lending businesses. The AAPC is also working to educate their congregations about the ways in which this industry damages the economic strength of working class and poor families.

The Predatory Lending Fact Sheet provides some very helpful information.

Understanding How Payday Loans Work: The Process
  • Loans are given to a borrower by a business, using the borrower's personal check or access to the borrower's bank account electronically
  • After providing the check or access to bank account, the borrower will receive the cash, or direct deposit to his/her bank account
  • The payday loan business or the 'lender' will hold onto the check, or authorization to the borrower's bank account electronically until the next payday
  • In order to pay off the loan you can do the following: pay in cash, allow the business to cash the check provided to them, or permit an electronic transfer from your bank account to the lenders bank account.
  • Payday loans are one of the most expensive means for a loan, if not the most expensive means for a loan. Each state has its own caps, limiting how much the payday loaned businesses can charge [Texas has no such limits]. Regardless, there is no one set price for all businesses.
  • These loans range from $100 to $1000 or more. The limits placed on how much a loan business can give will depend on the laws placed within your own state. The charges applied to each $100 using a payday loan service can range from $15 to $30, with the interest rates ranging from 390% to 780% APR. The shorter the loans, the higher the APRs.
  • When you are using a payday loan, you are running the risk of trapping yourself in a cycle that just repeats itself over and over and over again.
  • If the loan is unpaid, it means that the borrowers check did not clear due to lack of funds. This will cause bounced checks, which causing fees will be placed on the payday loan business, which will in return be transferred to you (the borrower). You will also incur fees by your bank for an NSF check. All of this will have a negative effect on your credit ratings on certain credit report.
  • Online payday loan providers are usually worse than established local businesses because they are providing the service online resulting in an increase in fraud risks.
  • Consumers apply online or through faxed application form. Loans are direct deposited into the borrower's bank account and electronically withdrawn on the next payday. Many Internet payday loans are structured to automatically renew every payday, with the finance charge electronically withdrawn from the borrower's bank account.

The following are some practical alternatives:
  • Talk to your creditors about extending your due date (extended repayment plans)
  • Work some overtime if your employer permits
  • Do a side job
  • Salary advances from your employer
  • Sell things you no longer need on Craig's list (http://dallas.craigslist.org), e-bay (www.ebay.com), yard sale, etc.
  • Adjust your tax withholding
  • Reduce some of your bills/expenses
  • Look for local emergency hardship programs - social service agencies
  • Look for credit unions/banks who have specific programs designed to be an alternative to payday loans - Unlike payday loans, these loans give the borrowers a real chance to repay with longer payback periods and installment payments.
  • At least a 90-day repayment term, repayment in installments
  • No personal check mechanism or other unfair collateral (such as a car title)
  • Reasonable limits on renewals (If borrowers are renewing short-term loans more than four times per year, the loans are not helping them)
  • Full consideration of borrower's ability to repay the loan

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