Payday loans have become a reality of millions of Americans. Industry experts say that the number will continue to increase. The most affected group are white women between the ages of 20 and 40.
As the new middle class of the United States live with little to no savings, large number of them are in debt. Borrowing from a bank, friends and family, or from various loaning companies. This type of companies are becoming more common as time goes on. Many are unable to pay the loans on time and have to take a new loan to pay the previous one., falling into a debt trap.
The fee for the loan is flat and will be in the vicinity of 15$ per 100$ borrowed, in most cases. The most typical amount borrowed is 350$. The loan is agreed to be payed all at once, at the end of the term. Thanks to the problems most of the people who were forced to borrow are, they fall into the debt trap, mentioned earlier in the article.
Due to the severity of the life many loaners find them selves in, experts fear that the abuse is inevitable. Many people who borrowed money from loaning companies surfer large number of embarrassing calls from the debt collectors. They often call friends and family, of their clients, making the situation even worse, for the unfortunate people. In some cases, debt collectors have been known to ruin someones credit, by leaving them in credit card debt, clients were not aware of.
The calls can leave people feeling threatened and afraid for their safety. This is despite the law not allowing them to harass, or abuse borrowers. Effort is being made to limit the number of calls a dept collector can make per week and to put more oversight on the transactions and interactions between two parties.
The biggest reason for the increased number of money lenders is the lack of regulations. Changes to the federal law, helped lenders to avoid usury caps, set by state governments. All of this has made it so the number of money lenders has risen to dwarf even fast food restaurants. Desperation and the lack of education is what is fueling the industry. This has also prevented people to negotiate fair rates. At the moment, there is nothing preventing this companies from demanding unreasonably high rates for loans.
Another important and worrying occurrence is the emergence of internet bazaars. Websites that connect sellers and buyers. Experts fear that many of them hold sensitive information, social numbers, account numbers and more. Giving sellers more power to negotiate even higher rates. Even when the Federal Trade Commission has taken action against debt markets, the abuse is still prevalently present in online interactions. By registering mortgage lenders, borrowers were able to find a loophole in the law that have banned high interest rates in several states.
The Consumer Financial Protection Bureau plans to limit the number of loans that can be taken in a succession, but such actions, necessary as they are, might leave unforeseen consequences. A number of small businesses rely on payday loan to continue functioning, even if they are putting themselves in even more debt, they are still willing to continue.
The very system is unstable and might cause another economic crash, similar to the one that happened in 2008. As the number of lenders increase, the rates have to be increased, creating a cycle that will end badly for the whole industry. More and more people will be in debt and as the rates increase, they will have less of a ability to pay for them. Even if the companies that offer lending services are limited even more and even with more oversight from the federal agencies, the situation may not be as simple. The quick, emergency credit may save someones life, of business.
Studies have shown that most who borrow money in this way continue to borrow several loans a year, even after each paycheck. As they have to use their regular income to pay for the debt and take another loan to have enough money for that month.
Economists fear that drastic measures have to be take, or the problem will become even worse.