A Payday advance shop is like sweatshops of lending business. These sweatshops
charge high fees for cash advances that in all eventualities
be repaid in total by the borrower before or on his next payday.
While we work it out as a yearly percentage rate, the interest
taken for a two- week loan naturally goes beyond 400%. But the
borrower cannot pay back the principal amount due on the next
payday; the loan has to be got renewed for another fee. These
roll-overs are one of the methods payday operators "sweat" their
clients.
We would try to examine some of these methods used by the
payday loan business lenders
for sweating their borrowers that have not yet received full
attention from analysts of this business sphere. Given that
the payday loans are loaned to fixed salary-earners and they
run short of money before payday, you might believe that each
wage-earner will only be permitted to secure a single payday
loan at a time and intended for an amount less than the take
home salary of the borrower. Mortgage lenders, in any case all,
must assess a borrower's capacity to pay and are
not believed to make loans no matter what other mortgage liabilities
and that exceeds the monthly income of the applicant. It is
not so payday for lenders. At the same time these loans often
go beyond the amount of the next paycheck of borrower that is
making roll-overs unavoidable. The debtors have a single payday
but more than one payday loan business, and when it is combined
in this manner these loans perform like a big, long- term, very
costly, interest-only cash loan. Subjective facts reported by
the media and by business critics already suggest that there
is a problem that exists. A current article about payday loan
in the Milwaukee Journal Sentinel said that "consumer credit
counselors say they have seen people with as many as 15 payday
loans on the books at once" (Gores 2005). However thus far there
has been no organized attempt to measure the extent of this
question. Payday loan customers are not easy to study and the
state outfits charged with misunderstanding of this industry
have not turned their attention to the problem of multiple payday
loans. The debtors or at least some of the debtors do go bankrupt.
Bankruptcy legal appeals are an opportunity to peep into the sweatshop of
payday loan business. Once debtors proceed for bankruptcy, they
make a list every one of the creditors from whom the bankruptcy
petitioners are requesting for protection, as in addition to
the extent and beginning date of each debt. On probing a sample
of 500 petitions for bankruptcy filed by the residents of Milwaukee
County in the summer of 2004, the petitions that record more
than one payday loan business
advance and it is found that scores of them have more than one
payday dates. Approximately 825 households went insolvent last
year in this county because they had more than one payday loan
at a single time (10.6% of all petitioners). Some petitions
listed as many as nine of these loans. The median debtor claiming
one or more of these debts owed the entire next paycheck to
payday lenders. Most of the debtors had been rolling over the
principal for many months.
Bankrupt payday loan customers are only the tip of a larger iceberg we cannot see. There is no reason to think that every person who carries more than one of these loans goes bankrupt. Payday lenders report that only a tiny fraction of their customers file for bankruptcy. If so, then we have reason to believe that at least several thousand residents of Milwaukee County owe more than one payday loan at a time. And this problem is likely to exist in any urban community in the state with a sizable number of payday creditors. The sweating of borrowers is widespread and must be known to the lenders, who have the means (through the Teletrack system) to identify customers with more than one loan.
Payday lending should not be a sweatshop industry. These loans
can serve up a valuable function for credit starved consumers
who want an emergency cash loan. The product is costly, but
a single loan that is paid off on time will not be a severe
burden to any borrower. The business becomes a severe burden
only when many rollovers are allowed, or when customers take
a number of loans at once. This happens to be an unconscionable
business practice for several lenders to give loans in cash
just against one and the same paycheck again and again, piling
on short-term finance that could not perhaps be repaid in mere
two weeks of loan period. As the elected officials think about
imposing limitations on the payday loan business, they must
meet head-on squarely the facts of not only one payday but several
payday loan business.
Several Wisconsin people have tumbled into this trap and are
burdened with huge, interest-only money advances. Lenders ought
to be blocked from giving new loans to candidate who previously
had one of these amounts outstanding. Fresh reforms in Florida
suggest a model which others like Wisconsin must imitate.
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