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Payday Loans Sidelined by ‘Consumer Installment Loans’

New York bankruptcy lawyers regularly warn debtors against payday loans. In 2017, the CFPB even finalized a rule to end “debt traps” caused by them. Now, though, lenders are turning to an even blunter way of enticing debtors to borrow significant sums they might not be able to repay: simply sending them checks with fine print calling them loans. According to a Washington Post article, these “consumer installment loans” can ruin debtors with their offers of instant money. Here are a few facts about them and how to avoid them.

Unlike payday lenders, consumer installment loans don’t originate in locations where debtors can take their paychecks. Rather, they are operated out of private equity firms that use the postal service. These firms use sophisticated data systems to identify potential debtors, and then send them checks for around $1,000 with strings attached. Endorsing and depositing the check signifies acceptance of the loans’ terms.

And what are those attached strings? In one example from the article, the finance company offered a debtor $1,200 at 33 percent interest, which is definitely higher than most credit-card interest rates. Once the borrower missed payments on the loan, the finance company sued him. He couldn’t afford a lawyer, but he was charged more than $500 to pay for the finance company’s counsel thanks to a term in the agreement accompanying the $1,200 check.

The loans also come with other benefits that are rarely worth the cost: add-ons like insurance in case debtors can’t repay the loans or car-club membership that cover auto repairs. For a time, the finance company neglected to fully inform debtors that these benefits were optional.

So who exactly is sending people checks under these conditions? The company showcased in the article, Mariner Finance, is owned by a private-equity firm, unnamed in the article but itself owned by Warburg Pincus, which is a big name in New York finance. Its president is none other than former Treasury Secretary Timothy Geithner, who criticized predatory lending while holding public office a decade ago. Mariner Finance does not appear to operate in New York, focusing on Virginia, Maryland, Tennessee, Pennsylvania, and Florida. However, its branch footprint has expanded rapidly since 2013.

This scheme shouldn’t really come as a surprise. Private-equity firms borrow money from investors to buy up companies with an eye towards reselling them. It’s not unheard of for private equity to simply strip the assets of the companies they buy, even if there’s a good chance the companies will file a business bankruptcy soon after they’re resold. This may explain why one would buy up a company specializing in consumer installment loans, which, in the words of a former employee, “monetizes poor people.”

The Washington Post article is here.

The easiest way to avoid a loan from a mass-mailed check is, obviously, to not sign it and immediately destroy it. Don’t simply throw it away. It’s possible if unlikely that someone can sign the check in your name, but more likely you may be tempted to retrieve the check and sign it later. Fortunately, only 1 percent of recipients cash the checks, but that just means finance companies are mailing millions of them.

If you’ve fallen behind on debt payments whether to conventional creditors, payday lenders, or a newer type of finance company, then talking to an experienced New York bankruptcy lawyer can help you assess your options.

For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.

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