Payday Loans Create Debt Trap for Consumers

This story out of Indiana describes the reality of the payday predator debt trap:

Payday loans, even a small amount, could end up costing you thousands in the long run, according to Indiana financial experts and a south side man who ended up filing for bankruptcy as a result of payday lending.

Mike Webb, a recruiter who lives on the south side, has been dealing with the impact of payday lending for the past decade.

Webb was a little behind on bills back in 2007 and needed $400 to make a car payment.

“I saw an opportunity to get a payday loan,” said Webb. “It was a quick and easy opportunity to get some money to pay the bills.”

Webb handed over his bank account information to the payday lender and got money fast.

“It was instant gratification, because the bill was paid and I felt great,” said Webb.

But when it came time to pay back the loan, Webb didn’t have the money.

“I took another loan to pay that off, and then another loan to pay that off,” said Webb. “Then it just downward spiraled from there.”

The interest, finance charges and fees all added up, and Webb ended up $12,000 in debt.

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Yes, even a small loan to help address an immediate financial need can create huge problems down the road. Tennessee lawmakers have been reluctant to pass reasonable restrictions on such loans, such as capping rates and enforcing existing laws regarding the number of loans a borrower can have at any one time. However, the Consumer Financial Protection Bureau (CFPB) has proposed a rule that would protect borrowers and prevent some of the worst practices of the predatory debt trap industry.

For more on our work to protect consumers from loan sharks, follow @TNCitizenAction


 

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