Is the North Carolina payday loan ban doing more harm than good?
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There are times when the electric bill needs to be paid today to keep your lights on but you don't get your paycheck until next week. That's unfortunately the case for too many North Carolinians as they are just a paycheck shy of poverty or even homelessness. For these types of emergencies, payday loans could be a viable solution that would provide that extra cushion of cash. But for many, payday loans can be a debt trap that strips too many low-income families of their peace of mind and future income.
Who Uses Payday Loans?
Nearly 67% of payday loan borrowers make less than $30,000 a year in wages and utilize this form of debt seven out of 12 months of the year. This can mean paying anywhere from $600 to thousands of dollars in fees. This can be an additional (and unwelcome) strain on already-tight finances. Many states have seen an increase in payday loan usage while the economy staggers toward recovery. And even North Carolina’s ban on this type of lending hasn’t stopped unwise borrowing.
What Are the Results of the Payday Lending Ban?
Payday loan critics claim that these lenders are predatory and are profiting off the backs of the impoverished and are driving an increased rate of bankruptcies. But is it possible that the ban is worse than the practice? North Carolina banned payday lending in December 2005. After this ban, the amount of bounced checks rose significantly. Millions more checks have bounced resulting in more than $40 million of bad check fees. Increased rates of utility shut-offs and passing on prescription medicines are common after the ban.
North Carolina has seen fall out from the ban of payday loans, but other alternatives have stepped in.
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Increased Bankruptcy Rates May Also Result from the Ban
Many states, including North Carolina, are slipping into poverty despite a slowly improving economy. While there has been some spark of hope, many families are still under serious financial pressure daily and payday loans may help in some circumstances. A report from the Community Financial Services Association of America, also showed that after the payday loan ban, Chapter 7 bankruptcy rates in North Carolina increased.
Other Fallout from the Ban
In addition to an increase in bankruptcies, many have pawned assets but in areas where pawn brokers have gone out of business, desperate borrowers have turned to even worse methods of credit. North Carolinians are increasingly turning to online lenders that charge rates as astronomical as the banned payday lenders. There is a small but growing call for legislators to revisit these payday loan bans because this is one time when the cure may be worse than the disease.
If you have debts piled up, Chapter 7 or Chapter 13 bankruptcy can be a viable solution to get you a much-needed financial fresh start. Most unsecured debts, including online payday-type loans, can be easily extinguished in bankruptcy. Contact the law offices of John T Orcutt for a free consultation.