Who Is To Say What Constitutes Predatory Lending?
The Center for Responsible Lending, a government think tank, thinks it should be the agency to determine what constitutes predatory lending. They are a group involved in trying to determine whether some sub prime or non-traditional lending activity is predatory or not, based on a variety of factors. They focus mainly on the housing loan products but now and then put out information on payday advance loans.Is It The Interest Rate That Makes A Loan Predatory?
While the payday advance loans do have higher interest rates than traditional financial institutions, so do many other financial services if you computed them as annual percentage rates. While payday advance loans can carry fee that when computed as interest rates range between 300 and 400%, the fact is that changing fees to interest rates makes the produce far less expensive than a bounced check fee which can be over 1000% for a $100 shortfall. If one were to view it this way, the check bounce fee is predatory and the payday advance loans are not. The payday lenders argue that taking the $100 from a payday lender with a $15 fee makes more financial sense than suffering a fee for insufficient funds, even when computing the fees as percentage rates.Loan Flipping
Where most experts agree that people get into trouble with high interest loans, whether they are for housing or personal checks, is when the loan cannot be repaid without refinancing it. Then, it is natural for an interest rate to increase and for the loan to incur more fees. However, many people caught in a cycle of debt might have very little alternative for lower interest rate loan vehicles. What the Center for Responsible Lending suggests is that payday advance loans work best when people only take one loan at a time, not multiple loans. Since most people caught in debt cycles overuse the service, they think it should be banned. Instead of allowing the individual to make up his or her own mind, the Center for Responsible Lending thinks it should be the one to make that call.Contributing National Payday Staff Writer
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