Consumer Law

What The FTC Says About Pay Day Loans

By M. Stan Herring

Pay day loans are almost always bad for consumers - in part because if you do business with people who will charge the types of outrageous rates that pay day lenders charge you can expect that they will violate laws when it comes time to collect the debt. The FTC has a special report out on pay day loans - we highly recommend that you read it. Here is an excerpt:

A payday loan ? that is, a cash advance secured by a personal check or paid by electronic transfer is very expensive credit. How expensive? Say you need to borrow $100 for two weeks. You write a personal check for $115, with $15 the fee to borrow the money. The check casher or payday lender agrees to hold your check until your next payday. When that day comes around, either the lender deposits the check and you redeem it by paying the $115 in cash, or you roll-over the loan and are charged $15 more to extend the financing for 14 more days. If you agree to electronic payments instead of a check, here?s what would happen on your next payday: the company would debit the full amount of the loan from your checking account electronically, or extend the loan for an additional $15. The cost of the initial $100 loan is a $15 finance charge and an annual percentage rate of 391 percent. If you roll-over the loan three times, the finance charge would climb to $60 to borrow the $100.

If you are dealing with a pay day loan and have questions or if you are dealing with harassment from the pay day lender or the pay day lender's collection agency, let us know and we will be glad to help you understand your options.

Full post as published by Alabama Consumer Blog on January 15, 2009 (boomark / email).