St. Louis, Mo., Jan. 5, 2011 – Desperate to pay rent or buy food for their families, many consumers are turning to payday loans as their last hope for urgently needed cash.
But while most borrowers believe they will pay off the loans quickly, the Consumer Fraud Task Force warns that payday loans can have long-lasting and devastating effects.
“Consumers may see payday loans as a quick fix for their immediate problems,” the Task Force says. “Too often, though, what seemed like a blessing can turn into a curse.”
Specifically, the Task Force said that payday loans can trap borrowers in a revolving door of debt that can be difficult to escape. When borrowers discover that their loan repayments leave them unable to meet their bills, they are forced to take out additional payday loans.
The nonprofit Center For Responsible Lending reported last year that the typical payday borrower takes out multiple payday loans per year, often paying a new fee for each loan.
In states where payday loans are legal, interest rates can be high.
A recent Better Business Bureau (BBB) study concluded that weak payday loan laws in Missouri have attracted out-of-state lenders who are “costing Missourians who can least afford it millions of dollars a year.”
The Task Force suggests that consumers be extremely cautious when considering loans either from an online business or a neighborhood loan office. It also warns that borrowers could be subject to criminal prosecution if they stop payment on a payday loan check or close their account prior to the check being submitted.
The Task Force offers these additional tips for consumers considering taking out a payday loan:
- See if your bank or credit union offers short term loans.
- Contact your creditors or your loan service company as quickly as possible if you are having trouble with your payments. Ask if you can have more time.
- Use a credit card for emergencies. Although this is generally an expensive way to borrow money, it is less costly than payday lending.
- Find out if you can delay paying a bill which has no interest charges, and make payment arrangements with the company.
- If you do take out a payday loan, read the agreement thoroughly and make sure you understand it. Know exactly when the loan will come due, how the money will be collected and how much your payments will be.
The Task Force is a coalition of local, state and federal government agencies and nonprofit business and consumer groups in Missouri and Illinois that work together to protect consumer and donor rights and guard against fraud. Previous Task Force releases have focused on tax scams, timeshare resellers, home remodelers, work-at-home scams, sweepstakes offers, online auctions, credit repair scams, debt management advice, foreclosure scams, extended auto service contracts, fire and police organizations, online payday loans and debt collection practices.