It’s no secret that the owners of payday loan companies reap huge profits off the backs of their low-income customers. Poorer neighborhoods in and around the Miami area are dotted with them, block after block.
While it can be a good thing to have somewhere to turn in an emergency where they don’t scrutinize your credit rating with a microscope, these loans are another form of indebtedness for those forced to turn to them. Interest rates can rise into the triple digits, leaving consumers caught up in a cycle of debt and usury.
But there is some brightness on the horizon. Recently, the Consumer Financial Protection Bureau announced that they planned to revamp the industry with a series of new regulations. President Obama defended the agency’s work in an Alabama speech.
“The idea is pretty common sense: If you lend out money, you have to first make sure that the borrower can afford to pay it back,” he said.
Just 14 years ago, the payday loan industry generated $14 billion per year. But that is mere peanuts to what it takes in now — $46 billion annually. Some lenders now have branched out and accept collateral in the form of car titles.
Before the lending industry was taken over by predatory practices, lenders carefully screened borrowers to determine the feasibility of their being able to repay the loans. Now, however, lenders tend to screen customers based on their own ability to collect from the indebted consumers.
Payday loan companies are given access to debtors’ bank accounts and can siphon off funds the debtors need for living expenses. Instead of being wary that these individuals are already behind on their monthly bills, they prey on the financially vulnerable by hooking them in and bleeding them dry.
If you are relying on payday loans or living off of your credit cards, it may be time to re-evaluate your financial situation. Your financial challenges may be alleviated by filing for bankruptcy.
Source: National Public Radio, “Payday Loans — And Endless Cycles Of Debt — Targeted By Federal Watchdog,” Scott Horsley, March. 26, 2015