Predatory payday lending practices cost American families
$4.2 billion annually.

Payday or cash advance lending is the practice of using a post-dated check or electronic checking account information as collateral for a short-term loan. To qualify, individuals need only personal identification, a checking account, and an income from a job or government benefits, like Social Security or disability payments.

Research shows that the payday lending business model is designed to keep borrowers in debt, not to provide one-time assistance during a time of financial distress. The ads are on the radio, TV, Internet, even in the mail. They refer to cash advance loans, which come at a very high price.

Check cashers, finance companies and others are making small, short-term, high-rate loans that go by a variety of names: payday loans, cash advance loans, check advance loans, post-dated check loans or deferred deposit check loans.

Usually, an individual writes a personal check payable to the payday loan company for the amount he or she wishes to borrow plus a fee. The company gives the borrower the amount of the check minus the fee. Fees charged for payday loans are usually a percentage of the value of the check or a fee charged per amount borrowed. Let say, for every $50 or $100 loaned they will charge a fee. And, if you extend or "roll-over" the loan for another week or two, you will pay the fees for each week.

Under the Truth in Lending Act, the cost of payday loans, like other types of credit, must be disclosed. Among other information, you must receive, in writing, the finance charge and the annual percentage rate or APR (the cost of credit on a yearly basis).

A cash advance loan secured by a personal check, such as a payday loan is one of the most expensive credit individuals can find. Let's say you write a personal check for $125 to borrow $100 for up to 14 days. The check casher or payday lender agrees to hold the check until your next payday. At that time, depending on the particular plan, the lender deposits the check, you redeem the check by paying the $125 in cash, or you roll-over the check by paying a fee to extend the loan for another two weeks. In this example, the cost of the initial loan is a $25 finance charge and 390% APR. If you roll-over the loan three times, the finance charge would climb to $60 to borrow $100.

Alternatives to Payday Loans

There are other options. Consider other alternatives for safer and less expensive loans:

Prevent Financial Emergencies

Take a very close look at your monthly income and expenses. Track where your money goes and find ways to save. Use a monthly budget sheet to track your finances. once you see you have negative cash flow you will have to find a remedy

The Truth About Cash Advance Loans

Payday loans are deceptive. Since you're forced to turn over a postdated check, you may be harassed, threatened, or subjected to collection practices. The cash advance lender may deposit the check before the date you agreed on, causing your check to bounce and forcing you to pay even more fees. Because individuals who use cash advance loans are usually in bad financial situations already, they may face bigger challenges repaying the original cash advance loan and they continue to extend it until they've paid more in fees than the amount of their original loan.

The high interest rates of cash advance loans make it difficult for many individuals to repay the original loan because they are already in a desperate financial situation. They keep extending the loan and end up paying more in fees than they originally borrowed, putting them in worse financial shape than when they first started.

To Complain/For More Information

If you believe a lender has violated the Truth in Lending Act, file a complaint with the FTC.

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