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As more seniors rely on reverse mortgages, troubles beckon for heirs

A new government report shows many seniors are taking out reverse mortgages on their homes without fully understanding the ramifications, leading to foreclosures among borrowers and a tangle of problems for heirs after the borrower dies.

“Consumer complaints tell us that the complex terms of reverse mortgages continue to be misunderstood,” said Richard Cordray, director of the Consumer Financial Protection Bureau, which just released a report highlighting the top complaints the agency received about reverse mortgages over the last three years.

A reverse mortgage is a type of loan that allows homeowners age 62 and older to tap a portion of the equity in their homes. The money typically is paid out in a lump sum or in regular fixed payments, with fees and interest added to the balance each month. Unlike a home equity loan, the money does not have to be repaid until the borrower dies, moves out or sells the home.

The loans can be a life line for house-rich, cash-poor seniors struggling with daily living expenses. Reverse mortgages also have been used to help retirees improve their lifestyles, allowing them to buy the summer home they had always dreamed about, for example.

But problems and confusion are expected to continue as more baby boomers retiring with little or no savings turn to the loans for help getting by.

The Consumer Financial Protection Bureau cited a 2010 Federal Reserve report concluding that in the 55-to-64 age group, 41 percent had no retirement savings. Even among those who had a nest egg, the average balance was only $103,200, the report said.

Many complaints that the protection bureau received showed people were confused about the way reverse mortgages work.

“Many consumers struggle with understanding how quickly their loan balance will go up and their home equity will fall,” the report said. As a result, many borrowers who wanted to refinance their loans were frustrated because there wasn’t enough remaining equity in their homes.

One of the most common types of complaints involved the inability of a borrower’s family members to assume the loan in order to keep the house when the borrower died, according to the report.

Reverse mortgages prohibit loan assumptions because actuarial tables are used to help determine the loan amounts. Adult children may keep the home only by paying off the loan or by paying 95 percent of the current appraised value of the house.

Those rules can present problems for multigenerational households when family members are living in the home at the time of the borrower’s death.

Heirs also complained about what they believed were inflated appraisals that required them to pay more than they expected, the report said.

Another common complaint involved the shock of having to sell a home or face foreclosure when a spouse died because the surviving spouse’s name was not on the reverse mortgage. Some couples were advised to take a reverse mortgage in the older spouse’s name to qualify for a bigger loan.

“Some consumers report that their loan originator falsely assured them they would be able to add the other spouse to the loan at a later date,” the report said.

To help more seniors stay in their homes, the U.S. Department of Housing and Urban Development — which insures most reverse mortgages through its Home Equity Conversion Mortgage program — implemented a new rule allowing surviving spouses who meet certain conditions to remain in the home regardless of their borrowing status.

The rule only applies to reverse mortgages originated through HUD’s program after Aug. 4, 2014.

The financial protection bureau also reported a number of complaints from borrowers who faced foreclosure or who lost their homes because they did not keep up with payments for property taxes and homeowners’ insurance, which under terms of a reverse mortgage must be kept current.

“Some consumers describe unsuccessful attempts to halt foreclosure proceedings by paying overdue taxes in full or through payment plans,” the report said.

In an effort to stem such defaults, lenders making loans under HUD’s program after March 2 will be required to make certain financial assessments of a prospective borrower. Currently, loan qualifications primarily are a borrower’s age and the amount of equity in a home.

The financial protection bureau recommends three steps that homeowners with reverse mortgages should take to protect their heirs. The advisory, “Three Steps You Should Take If You Have a Reverse Mortgage,” is available at consumerfinance.gov/blog.

The steps involve verifying who is on the loan, and planning ahead for the non-borrowing spouse and for any family members living in the home.

The advisory also has links to a consumer guide for people considering a reverse mortgage and a question-and-answer tutorial.

Consumers can submit a complaint to the protection bureau at ConsumerFinance.gov, or by calling toll-free 1-855-411-2372.

Patricia Sabatini: psabatini@post-gazette.com or 412-263-3066.

[…]

Regulators prepare rules on payday loans to shield borrowers | New …

WASHINGTON (AP)—Troubled by consumer complaints and loopholes in state laws, federal regulators are putting together the first-ever rules on payday loans aimed at helping cash-strapped borrowers avoid falling into a cycle of high-rate debt.

The Consumer Financial Protection Bureau says state laws governing the $46 billion payday lending industry often fall short, and that fuller disclosures of the interest and fees—often an annual percentage rate of 300 percent or more—may be needed.

Full details of the proposed rules, expected early this year, would mark the first time the agency has used the authority it was given under the 2010 Dodd-Frank law to regulate payday loans. In recent months, it has tried to step up enforcement, including a $10 million settlement with ACE Cash Express after accusing the payday lender of harassing borrowers to collect debts and take out multiple loans.

A payday loan, or a cash advance, is generally $500 or less. Borrowers provide a personal check dated on their next payday for the full balance or give the lender permission to debit their bank accounts. The total includes charges often ranging from $15 to $30 per $100 borrowed. Interest-only payments, sometimes referred to as “rollovers,” are common.

[…]

Federal regulators plan payday loan rules to protect borrowers

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A payday loans sign in the window of Speedy Cash, London, December 25, 2013. For the first time, the Consumer Financial Protection Bureau plans to regulate payday loans using authority it was given under the Dodd-Frank law. Photo by Suzanne Plunkett/Reuters.

WASHINGTON — Troubled by consumer complaints and loopholes in state laws, federal regulators are putting together the first-ever rules on payday loans aimed at helping cash-strapped borrowers avoid falling into a cycle of high-rate debt.

The Consumer Financial Protection Bureau says state laws governing the $46 billion payday lending industry often fall short, and that fuller disclosures of the interest and fees – often an annual percentage rate of 300 percent or more – may be needed.

Full details of the proposed rules, expected early this year, would mark the first time the agency has used the authority it was given under the 2010 Dodd-Frank law to regulate payday loans. In recent months, it has tried to step up enforcement, including a $10 million settlement with ACE Cash Express after accusing the payday lender of harassing borrowers to collect debts and take out multiple loans.

A payday loan, or a cash advance, is generally $500 or less. Borrowers provide a personal check dated on their next payday for the full balance or give the lender permission to debit their bank accounts. The total includes charges often ranging from $15 to $30 per $100 borrowed. Interest-only payments, sometimes referred to as “rollovers,” are common.

Legislators in Ohio, Louisiana and South Dakota unsuccessfully tried to broadly restrict the high-cost loans in recent months. According to the Consumer Federation of America, 32 states now permit payday loans at triple-digit interest rates, or with no rate cap at all.

The CFPB isn’t allowed under the law to cap interest rates, but it can deem industry practices unfair, deceptive or abusive to consumers.

“Our research has found that what is supposed to be a short-term emergency loan can turn into a long-term and expensive debt trap,” said David Silberman, the bureau’s associate director for research, markets and regulation. The bureau found more than 80 percent of payday loans are rolled over or followed by another loan within 14 days; half of all payday loans are in a sequence at least 10 loans long.

The agency is considering options that include establishing tighter rules to ensure a consumer has the ability to repay. That could mean requiring credit checks, placing caps on the number of times a borrower can draw credit or finding ways to encourage states or lenders to lower rates.

Payday lenders say they fill a vital need for people who hit a rough financial patch. They want a more equal playing field of rules for both nonbanks and banks, including the way the annual percentage rate is figured.

“We offer a service that, if managed correctly, can be very helpful to a diminished middle class,” said Dennis Shaul, chief executive of the Community Financial Services Association of America, which represents payday lenders.

Maranda Brooks, 40, a records coordinator at a Cleveland college, says she took out a $500 loan through her bank to help pay an electricity bill. With “no threat of loan sharks coming to my house, breaking kneecaps,” she joked, Brooks agreed to the $50 fee.

Two weeks later, Brooks says she was surprised to see the full $550 deducted from her usual $800 paycheck. To cover expenses for herself and four children, she took out another loan, in a debt cycle that lasted nearly a year.

“It was a nightmare of going around and around,” said Brooks, who believes that lenders could do more to help borrowers understand the fees or offer lower-cost installment payments.

Last June, the Ohio Supreme Court upheld a legal maneuver used by payday lenders to skirt a 2008 law that capped the payday loan interest rate at 28 percent annually. By comparison, annual percentage rates on credit cards can range from about 12 percent to 30 percent.

Members of Congress also are looking at payday loans.

Sen. Sherrod Brown of Ohio, the top Democrat on the Senate Banking, Housing and Urban Affairs Committee, plans legislation that would allow Americans to receive an early refund of a portion of their earned income tax credit as an alternative to a payday loan.

Sen. Elizabeth Warren, D-Mass., wants the U.S. Postal Service to offer check-cashing and low-cost small loans. The idea is opposed by many banks and seems unlikely to advance in a Republican-controlled Congress.

[…]

Cash America Announces New Share Repurchase Authorization for up to 4 Million Shares

FORT WORTH, Texas–(BUSINESS WIRE)–

Cash America International, Inc. (CSH) announced today that its board of directors, at its regularly scheduled meeting, authorized the repurchase of up to 4.0 million shares of the Company’s outstanding common stock, par value $0.10 per share. The share repurchase authorization does not have an expiration date, and the amount and prices paid for any future share purchases under the new authorization will be based on market conditions and other factors at the time of the purchase. Repurchases under the share repurchase program will be made through open market purchases or private transactions, in accordance with applicable federal securities laws. This new authorization cancels and replaces a previous authorization to purchase up to 2.5 million shares of common stock, under which approximately 41% of the authorized shares had been repurchased as of December 31, 2014.

Repurchased shares will be held as treasury stock for general corporate purposes. As of December 31, 2014, there were approximately 29 million shares of Cash America common stock issued and outstanding; therefore, the new authorization represents approximately 14% of the currently issued and outstanding shares of common stock.

In a separate release today, the Company also announced that its board of directors increased the quarterly cash dividend to 5 cents per share from 3.5 cents per share. The dividend will be payable on February 25, 2015 to shareholders of record on February 11, 2015. See the separate press release for additional details.

About the Company

As of December 31, 2014 Cash America International, Inc. (the “Company”) operated 943 total locations offering specialty financial services to consumers, which included the following:

859 lending locations in 21 states in the United States primarily under the names “Cash America Pawn,” “SuperPawn,” “Cash America Payday Advance,” and “Cashland;” and 84 check cashing centers (all of which are unconsolidated franchised check cashing centers) operating in 12 states in the United States under the name “Mr. Payroll.”

For additional information regarding Cash America International, Inc. visit its website located at www.cashamerica.com.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This release contains forward-looking statements about the business, financial condition, operations and prospects of the Company. The actual results of the Company could differ materially from those indicated by the forward-looking statements because of various risks and uncertainties including, without limitation: the effect of, compliance with or changes in domestic pawn, consumer credit, tax and other laws and governmental rules and regulations applicable to the Company’s business or changes in the interpretation or enforcement thereof; the regulatory and examination authority of the Consumer Financial Protection Bureau, including the effect of and compliance with a consent order the Company entered into with the Consumer Financial Protection Bureau in November 2013; risks related to the separation of the Company and Enova International, Inc.; a claim relating to the terms of the Company’s 5.75% senior notes; the actions of third parties who provide, acquire or offer products and services to, from or for the Company; public and regulatory perception of the Company’s business, including its consumer loan business and its business practices; the effect of any current or future litigation proceedings or any judicial decisions or rule-making that affect the Company, its products or its arbitration agreements; fluctuations, including a sustained decrease, in the price of gold or deterioration in economic conditions; a prolonged interruption in the Company’s operations of its facilities, systems and business functions, including its information technology and other business systems; changes in demand for the Company’s services and changes in competition; impairment risk related to the Company’s goodwill and intangible assets; the Company’s ability to attract and retain qualified executive officers; the ability of the Company to open new locations in accordance with its plans or to successfully integrate newly acquired businesses into the Company’s operations; interest rate fluctuations; changes in the capital markets, including the debt and equity markets; changes in the Company’s ability to satisfy its debt obligations or to refinance existing debt obligations or obtain new capital to finance growth; security breaches, cyber-attacks or fraudulent activity; acts of God, war or terrorism, pandemics and other events; the effect of any of such changes on the Company’s business or the markets in which it operates; and other risks and uncertainties indicated in the Company’s filings with the Securities and Exchange Commission. These risks and uncertainties are beyond the ability of the Company to control, nor can the Company predict, in many cases, all of the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements. When used in this release, terms such as “believes,” “estimates,” “should,” “could,” “would,” “plans,” “expects,” “anticipates,” “may,” “forecasts,” “projects” and similar expressions and variations as they relate to the Company or its management are intended to identify forward-looking statements. The Company disclaims any intention or obligation to update or revise any forward-looking statements to reflect events or circumstances occurring after the date of this release.

FinanceInvestment & Company Information Contact:

Cash America International, Inc.
Thomas A. Bessant, Jr., 817-335-1100

[…]

Feds To Write New Rules For Payday Loans: WSJ – Huffington Post

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NEW YORK, Jan 4 (Reuters) – A U.S. regulator focused on consumer protection is planning the first federal regulations ever for lenders that make small loans to borrowers seeking cash before their next pay day, The Wall Street Journal reported on Sunday.
The Consumer Financial Protection Bureau will convene a panel of small lenders early this year to discuss possible rules for payday loans designed to make them easier to repay, the report said.
Consumer advocates say the loans, which can carry annualized interest rates of more than 500 percent, can trap primarily low-income borrowers in a cycle of mounting debt. They are concerned in particular about online lenders, which they say sometimes skirt state laws for payday loans.
Until now, payday lenders have been regulated by states rather than by the federal government, but the CFPB and the Federal Trade Commission have both sued payday lenders for abusive practices.
The CFPB also ordered payday lender ACE Cash Express in July to pay $10 million to settle accusations that it had used unfair debt collection practices such as threatening to sue borrowers to pressure them into taking out new loans.
(Reporting by Emily Flitter; Editing by Leslie Adler)

[…]

Public warned not to use moneylenders for Christmas cash

The Central Bank of Ireland today asked consumers to “think twice” before using the services of moneylending firms this Christmas.

Research on the Moneylending Industry last year showed that more than one in five consumers (21%) took out a new loan before another loan was paid off.

Of these, 27% of the consumers interviewed claimed that they had used their new loan to reduce an existing loan.

Director of Consumer Protection, Bernard Sheridan, said “Households often have additional expenses at this time of year, and consumers could be tempted to take out additional loans to cover these expenses, including from moneylending firms.

“This could take consumers into a rolling cycle of high-cost borrowing and potential debt, especially given the high-cost nature of moneylender loans, when compared with loans from banks and credit unions.

“If a consumer does choose to take out an additional loan from a moneylender they should check that the moneylender is licensed by the Central Bank.

“Moneylenders licensed by the Central Bank are prohibited from keeping any amount of a new loan to repay an existing loan.”

He also had advice for those experiencing financial difficulties.

“If you have missed repayments, you’re protected insofar as your moneylender cannot charge you extra,” he said.

“However, if you find yourself having difficulties managing your money, contact the Money Advice and Budgeting Service who offer free budgeting advice and will help you manage your debt.”

[…]

Attorney General Kane files lawsuit over alleged illegal payday loan …

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Attorney General Kathleen G. Kane today announced a consumer protection lawsuit against a Texas-based company for allegedly engineering an illegal payday loan scheme over the Internet. According to the lawsuit, the defendants allegedly targeted Pennsylvania consumers in violation of state law.

The civil lawsuit was filed in the Court of Common Pleas of Philadelphia County against Think Finance Inc. (formerly ThinkCash), TC Loan Services LLC, Elevate Credit Inc., Financial U LLC and former Chief Executive Officer Kenneth E. Rees. Rees and the companies use an address of 4150 International Plaza, Suite 400, Fort Worth, Texas.

Payday loans, which typically charge interest rates as high as 200 or 300 percent, are illegal in Pennsylvania. According to the lawsuit, Think Finance targets consumers in Pennsylvania using three Native American tribes, who function as the apparent lender, as a cover. In turn, Think Finance earns significant revenues from various services it charges to the tribes.

According to the lawsuit, before establishing these tribal partnerships, the company allegedly used the cover of a rogue bank based in Center City Philadelphia, in what is commonly referred to as a “rent-a-bank” scheme, until the federal government shut down the bank.

A Think Finance press release in 2013 stated the company had more than $500 million in revenues – up from $100 million in 2010 – and had provided more than $3.5 billion in loans to 1.5 million consumers in the U.S. and internationally.

Also named in the lawsuit is an Internet marketer, Selling Source LLC, which used its “MoneyMutual” website and television commercials to generate online leads for high-rate lenders, including at least one tribal lender.

Selling Source allegedly made referrals of Pennsylvania residents to the scheme for a commission, even after it was ordered to stop those referrals in a 2011 agreement with the Pennsylvania Department of Banking. The lawsuit also includes various debt collectors as defendants, including the Washington-based law firm of Weinstein, Pinson and Riley PS, Cerastes LLC and National Credit Adjusters LLC, which are allegedly utilized to collect debts derived from illegal loans.

Attorney General Kane explained that in operating and participating in the scheme, the defendants are accused of violating several Pennsylvania laws including the Unfair Trade Practices and Consumer Protection Law, the Corrupt Organizations Act and the Fair Credit Extension Uniformity Act.

In the lawsuit, the Attorney General is seeking, among other things:

Injunctive relief to prohibit defendants from violating Pennsylvania law; Restitution for all consumers harmed by the scheme; Civil penalties of up to $1,000 for each violation of Pennsylvania law; Civil penalties of up to $3,000 for each violation involving a senior citizen; and Notification of credit bureaus to remove all negative information related to the scheme and all references to any of the defendants from consumers’ credit reports.

Attorney General Kane said the Bureau of Consumer Protection has already received information from numerous complaints against these companies, and she believes there are many more victims who have not yet filed a complaint.

“Any Pennsylvania residents with problems or complaints involving payday loans or related debt collection should get in touch with us immediately,” said Attorney General Kane.

Consumers can call the Attorney General’s toll-free consumer protection hotline at 1-800-441-2555.

The lawsuit was submitted for filing in the Court of Common Pleas of Philadelphia County by Deputy Attorney General Saverio P. Mirarchi of the Attorney General’s Bureau of Consumer Protection. Assisting him, as Special Counsel, is the Philadelphia law firm Langer Grogan & Diver PC.

[…]

What are the basic requirements to qualify for a payday loan?

A:

Payday loans, also known as cash advances, are short-term, low-balance, high-interest loans typically at usury rates that are so-named because of a tendency for the funds to be borrowed on a post-dated check that is cashed on the borrower’s upcoming payday. These loans are designed to be quick and easy and generally have very limited qualification loan requirements.

Per the Consumer Financial Protection Bureau, or CFPB, most payday lenders only demand that the following conditions be met for a person to qualify for a loan: borrower must have an active checking account; borrower must provide some proof of income; borrower must have valid identification; and borrower must be at least 18. The qualification and loan application process can be as fast as 15 minutes if you can quickly show you meet all of the requirements. In most circumstances, the borrower writes a check for the loan amount plus a lending fee, and the lender holds onto the check until a predetermined due date.

Qualifying loan amounts vary depending on the borrower’s income and the payday lender, although most states have laws establishing maximum payday loan amounts. Some states even limit the ability of borrowers to have multiple outstanding payday loans in an attempt to keep consumers from borrowing large amounts at extremely high interest rates.

Loan requirements should not be the only consideration if you are thinking about a payday loan. In terms of annual percentage rates, or APR, it is not uncommon for payday loans to exceed 500% or even 1,000%. Even though business models and regulations limit the size and duration of payday loans, these types of loans are still an expensive alternative and should be undertaken with care.

[…]

COLUMN-Excuse-free guide to student loan repayment

(The author is a Reuters columnist. The opinions expressed are her own.)

By Liz Weston

LOS ANGELES, Oct 27 (Reuters) – The six-month grace period for many student loans is about to expire for new college graduates. If the past is any guide, many people will miss their first payment and some will end up defaulting on their loans – even though there’s usually no good reason for that to happen.

The stakes are high: even a single missed payment on a credit account can damage an individual’s credit scores, although many loan servicers don’t report delinquencies until borrowers are 90 days or more overdue. Borrowers who default – failing to pay for nine months or more – face having some of their wages and all of their tax refunds seized by the government.

Yet many borrowers may have already lost track of what they owe, and their lenders may have lost track of them because of address or email changes.

That’s still no excuse for not paying.

Borrowers shouldn’t wait to get a bill before making plans to repay the debt. Instead, here’s how new graduates should tackle their student loans:

1. Know what’s owed

The typical borrower with student loan debt has four loans, according to a recent Experian study, and it’s not unusual to accumulate far more.

A borrower’s first task is to make a list of every loan, including the balance owed, the type of loan (federal or private), the date the first payment is due and the servicer, or the company designated to take your payments.

Borrowers should check the National Student Loan Data System for any federal loans they may have forgotten or for which they need more information. To uncover private loans, borrowers should get copies of their credit reports from www.annualcreditreport.com.

Recent federal loans have names that include Direct, Perkins, Stafford, PLUS or Grad PLUS. Older loans include Federal Family Education Loan (FFEL). Private loans are typically issued by banks, credit unions, colleges or non-profits.

2. Reach out for help.

Borrowers typically can get access to their loan accounts online, and doing so can make managing multiple loans easier. Graduates should take the time to update their addresses and emails with the loan servicers so that they don’t miss critical communications.

3. Explore payment options.

Income-based repayment plans, along with generous deferral and forbearance options that offer payment relief for up to three years, can keep the vast majority of federal student loan borrowers from defaulting, says Reyna Gobel, author of the book “CliffsNotes Graduation Debt.”

Private student loans offer fewer options for strapped borrowers. But some forbearance or deferral is typically available for those who are unemployed or facing other economic setbacks.

Even graduates who can manage their first payments should investigate alternatives.

Pay as You Earn, a federal income-based program, could lower payments to less than 10 percent of the borrower’s income – and those who work in public service jobs could be eligible for forgiveness of any remaining balances after 10 years of payments. (Those who work in non-public service jobs can get forgiveness after 20 to 25 years, depending on when the debt was incurred.)

If you’re unemployed or not earning much, Pay as You Earn can lower your payment to zero – while still keeping you out of default. Extended and graduated payment programs also can make payments more manageable. For more information, check the Department of Education’s student aid site and the Consumer Financial Protection Bureau’s Repay Student Debt tool.

4. Research consolidation.

Consolidation used to be a way to lower interest rates on federal debt and make one payment instead of several. Today, federal student loans offer fixed rates, and consolidation merely offers a weighted average of those rates.

Plus, many borrowers now have just one servicer even if they have several federal loans, so they may already have the convenience of a single payment. The best reason to consolidate may be to opt for lower payments by choosing a longer payback period – 15, 20 or 30 years instead of the typical 10 years, for example. But that increases the total cost of the loan.

The Student Loan Borrowers Assistance site has information about the pros and cons of consolidation.

One good reason for taking longer to pay back federal loans is to free up more money to pay off private loans, which typically have variable interest rates and few consumer protections.

Private loans cannot be included in a federal student loan consolidation. A few lenders offer private consolidation or refinancing that can include federal student loans, but borrowers could lose critical protections if they turn federal debt into private debt. (For more info, see http://reut.rs/1CF32fi).

5. Rethink aggressive payment plans.

Borrowers with decent incomes may be tempted to throw every available dollar at their debt. While this may decrease the interest they pay, they could be poorer in the long run if they don’t take advantage of opportunities to save. (For more, see http://reut.rs/1xKgoEl)

Another problem with rapid debt repayment is a potential loss of financial flexibility. Money paid to student lenders is gone for good, unlike money accumulated in savings. A layoff or other economic setback could leave the borrower scrambling for cash.

6. Know where to find help.

Borrowers should first contact their loan servicers to try to resolve any disputes. If that doesn’t work, borrowers can contact the Federal Student Aid Ombudsman for help with federal loans. For private loans or problems with servicers, complaints can be lodged with the Consumer Financial Protection Bureau.

(Follow us @ReutersMoney or at http://www.reuters.com/finance/personal-finance; Editing by Beth Pinsker and Dan Grebler)

Personal Finance – Career & EducationLoansstudent loansfederal student loans […]

Overdrafts Are More Costly Than Payday Loans for Consumers …

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Would you pay an interest rate of 17,000% to borrow $24? That might seem absurd, but you probably already have — and maybe more than once.

The average debit transaction that incurs an overdraft fee is $24, according to a recent study by the Consumer Financial Protection Bureau (CFPB). The majority of these overdrafts are repaid in three days; in lending terms, the interest rate charged would be in the tens of thousands, according to the report.

Even worse, the CFPB found that just 8 percent of customers are responsible for a whopping 75 percent of all overdraft fees.

“Sure there are a few people who make an occasional mistake and get an overdraft once every blue moon, but most overdrafts are from the same people over and over again,” said Andy Prescott, a CPA with more than 14 years of experience working in the banking industry and founder of Art of Being Cheap. “I worked in a bank’s customer service department for four years and talked with these folks on a daily basis. The problem is they just didn’t understand the [significance] of paying overdraft fees.”

Poll Finds One-Third of Americans Treat Their Checking Accounts Like Payday Loans

At such a ridiculous cost to essentially borrow money from a bank to cover a purchase, just one overdraft can be more financially devastating than the most predatory of payday loans. Even so, while the payday loan industry has come under scrutiny and subsequent regulation due to its dubious history, many Americans barely bat an eye at the thought of paying an overdraft fee.

To dig deeper into the phenomenon of overdrafting, GOBankingRates asked 1,000 people why they overdraw their bank accounts. The results were as follows:

I never overdraft (70.45%) I don’t know my account balance (14.85%) I absolutely need to make a purchase (6.84%) My bank’s overdraft policy confuses me (4.67%) The fee is less than my purchase (3.19%)

Fortunately, the majority of respondents reported that they never overdraft. However, approximately 30 percent do — and according to the CFPB’s data, many are repeat offenders who contribute to the bulk of overdraft fees paid to financial institutions each year — to the tune of $30 billion annually.

Why Do Americans Keep Paying Overdraft Fees?

According to the poll results, there is no significant difference between men and women when it comes to overdraft habits. However, while not linear, there is a positive correlation between age and answering “I never overdraft.” Conversely, there is a negative correlation between age and not knowing one’s account balance.

In fact, those age 18 to 24 were most likely to not know their account balances, least likely to respond with “I never overdraft” and most likely to be confused by their bank’s overdraft policies.

Of the approximately 30 percent of poll respondents who admitted to overdrafting, about half stated it was because they weren’t aware of their account balances. The next most-common response, at about 23 percent, indicated it was because they simply had to make the purchase regardless of whether or not funds were available.

Approximately 16 percent of overdrafters claimed it was due to confusing policies at their banks, while only about 11 percent of those who paid overdraft fees did so when the fee was less than the purchase amount.

The results of the poll indicate younger customers with less experience dealing with bank accounts are more likely to overdraft or be unaware of their checking account balance. Older folks, on the other hand, are by far the most responsible when it comes to managing their checking accounts and avoiding fees.

Keep Reading: How to Never Pay Another Checking Account Overdraft Fee Again

Additionally, lower-income banking customers of all ages are at risk of incurring overdraft fees, especially those who live paycheck to paycheck. “Overdraft fees unfortunately are becoming a tax on the poor,” said R. Joseph Ritter, Jr., a CFP with Zacchaeus Financial Counseling, Inc. “They are the most vulnerable to the fee but the least unable to pay.” He added that careful planning is the best way to avoid overdraft fees.

Tips to Avoid Overdraft Fees

Start Tracking Your Finances

“My clients stop overdrafting from their bank accounts once I share with them how much they have paid in overdraft fees over a year,” said Jay Malik, a money coach and tax strategist. Malik explained that his firm tracks overdraft fees as a separate spending category and then presents clients with their total fees paid at the end of the year. “I’ll bring to their attention that over the last year they have paid, say, $1,100 in overdraft fees to the bank. Their usual reaction is ‘no way, this must be a mistake.’”

Tracking your finances can help clue you in to the grim realities of your spending habits. A simple spreadsheet will do the trick, but you can also sign up for free software like Mint to get a more detailed picture of trends in your personal budget.

Be Proactive

Otis Buckley, author of “Payday Proverbs: 31 Keys for Overcoming Paycheck to Paycheck Living,” recommended setting up text alerts to notify you when your account balance falls below a $50 to $100 threshold, which is usually a free service offered by financial institutions through their online and mobile banking platforms.

“For the person on the go, this will provide the convenience necessary to view recent account activity and make transfers” Buckley said.

Get Clear About Regulation

Understanding the laws surrounding overdraft protection will help you make a more informed decision about how you should allow your bank to handle insufficient funds. Buckley noted that banks must provide you with the option to participate in standard overdraft practices or not.

“If you opt-in, you perpetuate consumer habits from which banks benefit. If you opt-out and have an oversight in your bookkeeping or ledger, you run the risk of bouncing an important payment like mortgage, rent or insurance. Choose wisely,” Buckley said.

Related: Everything You Need to Know About Overdraft Protection

Slipping up and incurring an overdraft fee might not seem like a big deal, but those who do so habitually are throwing away money that could be put toward savings, paying down debt or splurging on a dream purchase. Don’t let banks profit off your inattention — taking a more active role in your daily finances will keep more money in your pocket rather than theirs.

Edward Stepanyants contributed to this report.

Photo Credit: HelenCobain

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