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Consumer Beware: Payday Loans May Be Riskier than Petitioning for Bankruptcy

Posted on in Bankruptcy

The allure of fast cash directly deposited into your bank account within 24 hours may sound appealing but as The New York Times recently reported, consumers should be extremely cautious when it comes to the pitfalls of signing on the electronic dotted line.

The article, citing data from the 2014 four part series, Payday Lending in America, facilitated by The PEW Charitable Trusts, a research organization dedicated to taking an analytical approach to improve public policy through advancements and dedication to civic life, found that the practice of payday loan advances were extremely detrimental and dangerous to the indebted American consumer.

Borrowing from one of these lenders may be found even more damaging to one's credit and bank account than if one opted to consult with an experienced bankruptcy attorney and petitioned for debt protection under Chapter 7 or Chapter 13 bankruptcy. Furthermore, Pew's report highly recommends the adoption of firmer regulatory guidelines by the Consumer Financial Protection Bureau to combat the complaints generated by unsuspecting consumers.

The PEW series related these key findings with regard to payday loan advancements.

Exorbitant Annual Percentage Rates (APR)

The annual percentage rate for online payday loan can reach as high as 700 percent due to the number of borrowers who default.

Automatic Loan Renewal Structure

Often online borrowers will endorse an automatic renewal of a loan, trapping themselves in a vicious cycle of debt. Involvement in this process are only satisfying the lender's high cost fees and not paying down the principal leaving them in a continuous debt cycle.

Identity Theft and Financial Risk

Thirty-nine percentage of PEW study participants reported that the lenders sold their personal and financial information to third party recipients without their knowledge.

Many borrowers, 46 percent reported that the lender often increased withdrawals causing bank accounts to overdraw and 22 percent reported that their financial institution automatically closed bank accounts associated with a online payday loan lender.

Consumer Harassment and Threats

For 30 percent of those involved in the payday loan process admit to being repeatedly threatened by the lender. Different tactics included contacting family members, friends and even employers. In many instances these practices violate federal debt collection laws.

Consumer Complaints

The PEW study indicates that nine out of 10 consumers who opted for an online payday loan eventually reported the lender to the Better Business Bureau (BBB). The majority of those complaints addressed the billing or collection actions of online lenders. Fraud, harassment and dissemination of personal information were also documented.

If you find yourself drowning in debt and unable to pay down your liabilities, short-term online payday loans may only increase your debt stress. The skilled Arlington Heights bankruptcy attorneys of Newland & Newland, LLP can discuss the benefits of Chapter 7 or Chapter 13 bankruptcy as a more secured long-range plan to ease your financial burden. Contact our legal team today for more information.

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