With millions facing foreclosure, job losses or salary cuts, mounting credit card and medical bills, and other tenuous financial situations during what seems like an unending economic downturn, more and more Americans are considering payday loans as a way to keep their heads above water. In an earlier post, entitled Pass on the Payday Loans this Holiday Season, we explored why this trend is far from financially desirable over the long term, often leading to payday borrowers becoming slaves to an endless cycle of insurmountable interest, perpetual payments, and, in some situations, leaving many Americans vulnerable to collections actions, judgments, wage garnishments and bankruptcy.
But what if you’re already drowning in payday loan debt? How can you avoid any or all of the above?
One way to escape the cycle of payday loans is a payday loan settlement. When attempting to negotiate a settlement, your due diligence and research prior to contacting your payday lenders to settle could prove very rewarding.
Here are your best, first steps.
Lining Up Your Lenders
Payday loan settlements are largely a matter of negotiations among you, as borrower, and your lender or lenders. As a result, whether you’re planning to pay down a couple of payday loans or a couple of dozens, it’s important to “line up your lenders”—writing down all payday loans you have, separated, if necessary, into two primary categories: Internet loans and those received from actual payday lending stores. For each lender, also account for the amount borrowed and the total amount already paid back, including interest, fees, and any other relevant lending charges. Because online and brick-and-mortar lenders are regulated differently, separating each into these sections will allow you to more easily take the next step in the settlement process: maximizing the effect of your state’s payday lending laws.
Learning Your State Licensing Laws
The next step for a successful payday loan settlement is to verify whether your state’s laws require online payday loan companies to be licensed in your home state or whether they accept another jurisdiction’s licensing standards. About half of states, as well as the District of Columbia, have passed industry-backed laws specifically authorizing payday lending. These laws generally require either licensing or registration. Some specify maximum loan terms and/or amounts. In order to get this information, check either Internet payday loan state laws or Payday Loan Consumer Information. This verification of registration and licensure is especially important in the event your payday loans are Internet-based. Since the large majority of online payday lenders are not licensed anywhere in the country, a licensure requirement in your state of residence gives you a starting point to negotiate the validity and settlement of your debt.
Knowing Your Limits (and Theirs)
Feel like you’ve been paying too much for your payday loans? Well, your state may agree. In fact, if payday lenders violate state lending limits, you may have another vantage point from which to begin settling your loans. Begin by verifying the laws in your state regarding whether rollovers are permitted at either type of duly-licensed payday lender, as well as the maximum allowable interest, fees and loan amount allowed for each.
Settling with CFSA Members
The Community Financial Services Association of America (CFSA) is dedicated to promoting responsible regulation of payday lenders. Participating members are required to set up payment plans for borrowers drowning in their debt. In order to get any type of loan settlement with a CFSA member, you must first file a request to settle before you default on your debt, allowing you a means to rearrange your payday loans in a way that can not only help you discharge them but also pave the way to a better financial future.