A payday loan is a quick and simple way to get money in your hands immediately when you find yourself in a financial bind. All you need is an active checking account, government-issued identification, a social security number, and proof of income for most payday loans. But, as James Jean-Pierre said, “The promise of easy money is but a wolf's trap laid out for sheep seeking taller grass.”
In other words, payday loans are BAD. And they can make your financial situation worse - FAST. Fast money is not always easy.
Online Payday Loans
Payday loan companies have long been frowned upon because of their predatory lending practices. They are known for inaccurately representing the entire cost of payday loans. Most borrows are led to believe that the interest rates on their payday loans will be less than 30 percent APR. In reality, most of these loans end up being an average of 400 percent APR, according to the Consumer Financial Protection Bureau.
This is the main reason federal and state regulators are cracking down on lenders who offer their payday loan services online. The Department of Justice launched an investigation called Operation Choke Point that aimed at determining if specific banks were illegally grabbing money out of consumers’ checking accounts. The main objective of the investigation was to cut down on fraud and money laundering, but the payday loan industry was one of the biggest targets.
Over 50 subpoenas were doled out to payment processors and the banking institutions that conducted business with them. As a result of Operation Choke Point, the Justice Department sued Four Oaks Bank, stating that the bank in Four Oaks, N.C. purposely remained ignorant while it processed payments for deceitful merchants. The bank withdrew more than $2.4 billion illegally from customers’ checking accounts on behalf of the merchants the bank worked with - and hundreds of thousands of those dollars were fees.
Some government officials were mad at the Department of Justice for targeting payday loan companies. They felt like payday loans were the only means for people who did not have the credit to obtain regular loans. The problem the Justice Department had with the payday loan companies was the practice of taking advantage of consumers, however.
Many states have banned payday loans and the states that do allow them have imposed limits on the fees that a loan company can charge a consumer. Despite these laws, banking institutions, payment processors, and payday loan companies have found ways to work together to circumvent these regulations, each institution making a profit off of desperate consumers who need money now. Payday loan companies have also disguised themselves as installment lenders and title loan companies, for example, to get away with taking advantage of consumers.
I Already Have a Payday Loan - What Can I Do?
Most people who turn to payday loans experience unexpected expenses that cannot be put off until the next payday. Many are stuck in the vicious cycle of robbing Peter to pay Paul.
The problem with taking out a payday loan is that it tends to turn into another vicious cycle. You take out a payday loan, then pay it back - plus the fees. You fall further behind on your bills because most of your paycheck went to paying the loan, and then you end up needing another loan.
This time, the payday loan company makes you feel special by offering you more money than the last loan. So, you take out the maximum amount they will allow you to borrow and end up paying more in fees, of course. And the cycle gets harder and harder to break.
There is a solution that can alleviate the anxiety that the payday loan cycle causes. If you qualify for a Chapter 7 bankruptcy, most of your unsecured debts can be discharged. That includes payday loans.
The company that you obtained the payday loan through might try to tell you that your loan will not be discharged if you file bankruptcy. They are wrong. Payday loan companies cannot exclude themselves from following bankruptcy code.
Please do not take out a payday loan and then attempt to file bankruptcy, though, because the company has the right to object to the debt being discharged. You cannot incur debt if you know that you plan to file bankruptcy. In fact, if you are considering filing bankruptcy, you should discontinue using your credit cards and refrain from acquiring any more unsecured debt. If you do, you could be held accountable for those debts, as they might not be discharged.
Some debtors have even considered taking out payday loans to pay their bankruptcy payments. This is a terrible idea for several reasons, but mostly because when you file bankruptcy, your lawyer will determine a monthly payment that you should be able to pay with your current income. Payday loans should not be a necessity, nor should they be an option for paying for your bankruptcy.
Warning: Writing bad checks to payday loan companies is never a good idea. Sure, we can attempt to get the payday loan discharged in your bankruptcy petition, but if you wrote a bad check to the payday loan company, any criminal liability will still remain your responsibility.
Are You Considering Filing For Bankruptcy?
If you feel bankruptcy is the best option for your financial situation you need to speak with an experienced bankruptcy lawyer as soon as possible. Please contact us online or call our office directly at 888.348.2616 to schedule your free consultation.