When you think of “predatory lenders,” your first unfortunate thoughts may turn to non-banking entities—often unseemly, less-than-legitimate-looking establishments lit up with neon signs offering “quick check cashing” and “fast money orders.
But in the recent years since the recession ended, well-known banks are getting into the payday lending game, shirking a landmark financial law meant to prevent another financial crisis, and making fast payday cash a major part of the mainstream financial exchange with unwary borrowers.
According to a new article from The Huffington Post, the process is just as simple as with brock and mortar check cashing stores and the result can be just painful for average Americans facing tough financial times. “Here’s how a payday loan works: You, the customer, borrow money from the bank. The bank lends it to you at a high APR, or annual interest rate. When your next paycheck comes, the bank repays itself out of your direct deposit -- taking the loan, plus whatever interest the bank charges. It doesn’t matter if you don’t have enough money in your account; the bank goes ahead and repays itself anyway, even if this triggers overdraft fees. Often customers end up having to take out another loan to get by until the next paycheck -- and so the cycle continues.”
This week a nonprofit research organization, the CRL, published a new report confirming that legitimate banks are now primary suspects in the payday lending racket, dispending these predatory loans in financial practices otherwise known as a “direct deposit advance” or a “checking account advance.”
“In 2010, Bloomberg reported that banks including Wells Fargo, U.S. Bancorp and Fifth Third Bancorp were offering services called “checking advance products” -- which functioned very similarly to payday loans -- as a way to recoup billions in lost revenue after new overdraft-fee regulations were passed. Wells Fargo, Fifth Third and U.S. Bancorp were also among the banks named in a 2009 piece for the Twin Cities Star Tribune. That article, by Chris Serres, noted that in 2003, John Hawke, then head of the Office of the Comptroller of the Currency, spoke strongly against payday loans and warned such lenders to “stay the hell away from national banks.”
These strong words come with news that the average 10-day payday loan from a bank carries a whopping 365 percent APR. The one-month payday loan has an interest rate of 120 percent, a budget-busting rate that’s much higher than the average interest rate on a credit card, which is only 13.1 percent. According to HuffPost, “Social Security recipients, whose financial situations can be especially precarious, make up nearly a quarter of payday-loan borrowers, according to the report.”
With these exorbitant interest rates often part and parcel to the bank’s payday lending ploys, it’s not hard to understand why payday loans can lead directly to bankruptcy. Like any creditors swarming their unpaid debt, delinquent payday loans lead to harassment from payday lenders and their unscrupulous cronies—even when those lenders are otherwise legitimate banks. Borrowers who use payday loans are particularly susceptible to these types of actions when they find themselves unable to repay. Luckily, North Carolina has outlawed storefront payday lenders. However, internet-based payday lending continues to be a persistent problem.
If you’ve already fallen victim to a payday lending scheme, an experienced bankruptcy attorney can end your cycle of endless spending. To get the big picture on how bankruptcy works and how the laws in North Carolina can help you, speak with an attorney at the The Law Offices of John T. Orcutt.