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The payday loan industry is notorious for charging extremely high interest rates and targeting low-income consumers – many of whom do not have bank accounts or credit cards. Since these consumers have severely limited options when it comes to cashing their checks or borrowing money, they are easy prey for companies that charge outlandish fees for quick-cash loans.
To help understand how outrageous the rates on payday loans are, consider the fact that many consumers in Missouri launched a ballot initiative last year to cap the rate of payday loans at 36 percent. They considered that a worthwhile target, despite the fact that 36 percent is about twice what many consumers pay on credit cards and several times higher than competitive consumer loan rates.
Why do consumer activists think 36 percent is a cap worth fighting for, you ask? Payday lenders operating in about 40 states across America charge annual rates of interest that range from 100 percent to more than 1,000 percent. For anybody forced to pay those crazy rates 36 percent spells relief. Payday lenders may offer a service that people need, but they are also ripping people off in the process.
That’s why half a dozen or more federal agencies are conducting intense investigations into payday loan businesses – also referred to as “check cashing places.” Among the agencies involved in the probe are the Justice Department and the Treasury Department, plus the Consumer Financial Protection Bureau and offices of the Attorney General from several states across the USA. California, Minnesota and Virginia have cracked down on dozens of payday loan companies and New York forced 35 lenders to stop making loans that carried interest rates higher than 15 percent.
The Nature of the Investigations
While going after lenders that the government agencies believe are circumventing the law to gouge customers, investigators are using an entire range of laws – including those that cover money laundering. They seem intent on catching lenders or their cohorts and business partners who are knowingly and intentionally trying to bilk innocent consumers.
According to sources close to the investigations, financial companies, banks, and payment processors who help payday lenders collect customer payments are also being targeted. State officials have enlisted the cooperation of more than 100 banks, for example, asking them to stop working with payday lenders that use banks to transfer money and collect payments. That’s one of the keys to putting an end to payday lender scams.
Payday Business Scams
Recently, for instance, a federal judge ruled against an online company charged with illegally withdrawing cash from consumers’ bank accounts, just because they visited websites that marketed payday loans. Several defendants were found guilty of failing to disclose that they were using confidential consumer bank account information to charge them enrollment fees for programs or services that the unwitting consumers did not want.
According to court records, the websites had application forms that people would fill out for such random, unrelated things as discounts on food and travel. After they clicked “submit” and sent in these applications they were surreptitiously signed up for other services and charged as much as $59 or more per month. Later they would be hit with additional annual membership fees of nearly $100. The judge awarded nearly $10 million to consumers who had been victimized.
What it Means for You
When so many payday lenders are being dragged into court for predatory practices it just validates the notion that these loans are no good for consumers. Even if you need check cashing services, there is no need to pay rip-off rates that simply help to keep you deeper in debt. One alternative to consider is a prepaid card that allows you to deposit your checks and also make bill payments online. There are also some online banks that offer checking accounts with low minimum deposits and balances and without all of the expensive fees charged by many mainstream offline banks.
You can learn more about those options and compare the features and benefits by reading reviews posted on this site, where you’ll also find recommendations for credit cards that cater to people with bad credit. Study the interest rates and fees to find a solution that will work for you without taking undue advantage of your financial situation.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.
*The content in this article is accurate at the publishing date, and may be subject to changes per the card issuer.