Payday Loans: Modern Day Usury
by Stephen Lendman
Loan sharking writ large.
Payday loans let predatory lenders rip off unwary borrowers. They provide short-term unsecured quick cash. It comes at a high price. It matches the worst of loan shark practices.
The Center for Responsible Lending (CRL) calls itself a "non-partisan organization that works to protect homeownership and family wealth by fighting predatory lending practices."
It's "witnessed, studied, and fought against outrageous lending abuses." They "strip billions of dollars from (unwary) American families."
In July 2009, its report discussed predatory payday lending. It's titled " Phantom Demand : Short-term due date generates need for repeat payday loans, accounting for 76% of total volume."
In other words, debt entrapment assures repeat business. Borrowers need new loans to service old ones. They also need help to meet other obligations.
It's a scam. It extracts up to an 400% annual percentage rate (APR). It requires short-term balloon payments. They're do every two weeks. They extract 25 - 50% of borrower income. Doing so leaves them unable to handle daily obligations.
It forces them into new loans. If not repaid, they're automatically rolled over. Added interest compounds. What a way to make money. It's sure fire profit-making. It works as planned.
In 2010, three million Americans got payday loans online. Doing so expands a lucrative profit source. By 2016, forecasts estimate 60% of payday borrowing this way. It's nearly double 2011's level.
Offshore sites operate. Doing so circumvents state regulations. Shell companies run them. Anything goes is policy. Consumer protections don't exist. Scams are easier than ever. Clever crooks find new ways to steal. It's easy when no one stops them.
New loans follow old ones. Many happen almost immediately. At times it's in a day or less. Doing so locks borrowers in debt. That's what lenders have in mind.
Borrowers "generally open new loans in rapid succession." Around 87% of new ones occur during the next pay period. Half come when borrowers are first able. They're after partially repaid old ones.
"Churning" guarantees big profits. Nearly 59 million loans exceed $20 billion. Loans to one-time borrowers account for 2% of volume.
Churned loans produce $4.5 billion in annual fees. Unwary borrowers don't know what they're getting themselves into. They enticed with first-time discounted or free terms.