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Payday Loan Business

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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