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New York Cracks Down on Sites With Payday Loan Ties
Posted By Carole Fleck On December 5, 2013 @ 12:14 pm In Money Talk | No Comments
The result, as it turned out, was a suffocating debt trap. Bibbs says she took out one high-interest, short-term loan after another from payday lenders online. First she borrowed $400, then $300 and finally $500, all in the last year. She used the money to pay her rent – she’d fallen behind – and other living expenses that her Social Security and pension checks weren’t covering.
Payday loans are cash advances to help borrowers with living expenses. These short-term loans, with annual interest rates that can be as high as 400 percent, often are tied to a borrower’s paycheck, Social Security benefit or bank account.
As many as one in four such borrowers are Social Security recipients like Bibbs, according to the nonprofit Center for Responsible Lending.
“I was wondering if I was ever going to finish paying it off,” Bibbs says. “You’re always behind. You need to pay your rent, but before you can pay your rent, they take your money because it automatically comes out of your bank account. You borrow $400 and by the time you pay it back, it’s like double that or more. They eat you alive.”
To prevent other unwitting consumers from getting caught up in a debilitating debt cycle, state and federal authorities are increasingly cracking down on the payday loan industry. Now New York is going one step further. Authorities are looking into the practices of 16 websites that sell consumers’ private financial information to payday lenders. The websites are considered lead generators because they provide lenders with potential borrowers to solicit, according to The New York Times. Authorities sent subpoenas to those websites last week seeking information and examining their ties to payday lenders.
Related: Test Your Smarts About Payday Loans
New York officials earlier this year ordered 35 online payday lenders to stop offering loans to New Yorkers if the loans violate state usury caps on unreasonable and excessive interest rates, the Times reported.
As a growing number of states (15 so far) impose caps on interest rates, which AARP supports, payday lenders are turning from storefronts to websites, where they may be able to skirt state laws, the Times said.
Some consumer advocates say online payday loans will overtake storefront loan volume. Richard Cordray, the head of the Consumer Financial Protection Bureau, says the CFPB is analyzing the use of online payday loans.
According to a Pew Charitable Trusts report, the average borrower takes out eight loans per year at $375 each, paying about $520 in interest.
“Taking out a payday loan is like entering a revolving door with no exit,” says Sally Hurme, a project adviser at AARP. “When a payment comes due, it’s easy to go around one more time by asking for extra time to pay off the loan. But with each payment delay, the fees rapidly spin higher and higher, making it harder and harder to pay off the loan.”
A few alternatives to payday loans to consider:
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