For too many people, bankruptcy feels like giving up. Choosing other, riskier options may make them feel as though they’re still in control, and who knows? Maybe things will turn around for them. They run down their savings, rely on credit cards, and then as a last resort make a visit to a payday lender.
Payday lending is a straightforward concept: The borrower writes the payday lender a post-dated check that’s valid after two weeks, and in exchange the payday lender gives them that amount of cash, minus a fee. After two weeks, the lender deposits the check. The chief problem is the interest the payday lender demanded. Payday loans often charge interest rates of 18 percent per two week period. That means that if the borrower doesn’t repay the interest in time, the lender will likely assess a late fee, and watch the interest compound upon itself. If the original check turns out to be bad, the borrower’s debt will double in 59 days. The annualized rate is 7,295 percent.
It gets worse. The lending fee can go as high as 25 percent, which is added to the principal on Day 1. If the borrower’s check is bad, he or she has two options: either let the check bounce and watch the interest recapitalize onto the principal along with any assessed late fees, or take out another payday loan with a new origination fee and make everything worse. If the amount grows out of control, the payday lender will sue. Worse, two law professors wrote a paper titled, “Do Payday Loans Cause Bankruptcy?” in which the authors discovered payday lenders discourage borrowers from paying on time.
Also, as with other creditors, payday lenders will occasionally lie to borrowers by telling them they will be sent to jail if they don’t pay. This is untrue. Even if the check bounces, the borrower can only be charged with criminal fraud if he or she had no intention to make good on the loan, which is almost never the case.
Payday lending is not an optimal way of solving credit problems, and if you are at your wits end, there’s no time better than now to consult with an experienced New York bankruptcy lawyer.
For more questions about payday loans, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Business Bankruptcy Lawyer Bruce Weiner for a free initial consultation.
