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Payday Lenders Sue on Defaulted Loans – How You Can Avoid Court

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By now, it’s fairly common knowledge that payday loans are expensive and dangerous. As if the interest rates and predatory terms weren’t enough to compel people to want to get out of the payday loan cycle, a recent report on payday lenders suing their borrowers is enough to concern anyone. According to the report, borrowers who default on their payday loans can be sued by their lenders with little protection from the law. Many payday lenders are doing just that.

If you’ve already borrowed money with payday loans, then this knowledge alone isn’t helpful. What you need to know is how to get out of payday loan debt now so that you can get back on track with your finances. Read on to find out how to prevent being sued and how to get out of the payday loan cycle.

Payday Lenders Suing Defaulted Borrowers

According to a report recently published by ProPublica, payday lenders actively pursue lawsuits against borrowers who go into default – to the tune of tens of thousands of lawsuits each year, per payday lender. And it’s not just the debt the borrowers are responsible for. They could also be on the hook for legal fees and further interest accrued. For borrowers already in a tight financial situation, it could be nearly impossible for them to work their way through this debt. According to ProPublica,

“High-cost loans already come with annual interest rates ranging from about 30 percent to 400 percent or more. In some states, if a suit results in a judgement – the typical outcome, the debt can then continue to accrue at a high interest rate. In Missouri, there are no limits on such rates.

Many states also allow lenders to charge borrowers for the cost of suing them, adding legal fees on top of the principal and interest they owe. Borrowers, meanwhile, are rarely represented by an attorney.”

While it can be argued that a lender would need to sue to recoup funds that were lent out, the practice of allowing these lenders to charge further interest is questionable at best. In the case of one story highlighted by ProPublica, a women who had been sued feared only sinking further into debt as, “Missouri law allowed it [the original debt] to continue growing at the original interest rate of 240 percent.” At that rate, anyone living paycheck to paycheck could easily be facing a life sentence of debt repayment.

How to Avoid a Lawsuit from Your Payday Lender

The number one way to prevent a lawsuit is to prevent default. However, that’s not always avoidable. That’s why we’re offering tips to help you whether your loans are still in good standing or if you’re already in default. As scary as this situation is, tackling it head on is the best way to prevent a lawsuit and further debt.

If your loans are still in good standing:
If your loans are still in good standing, but you fear you’re on the brink of losing control, then the time to act is now. Follow these steps to keep your loans in good standing and work towards payoff:

  1. Redo your budget – dig deep to cut back on monthly expenditures and apply that savings to your payday loans. Even a small bit of savings can make a big difference!
  2. Prioritize the payday loan over other debt – if you’re paying on other debt besides the payday loan, make sure that you apply any extra amount towards the payday loan only. By targeting this loan with the highest interest rate, you can pay it off faster and then divert those funds to your next debt account.
  3. Find ways to earn extra income – with the influx of opportunities online, you could find a way to earn extra money at home that are flexible enough to work with your current work schedule. Apply all extra funds to the loans each month.
  4. Stay in touch with your payday lender – while keeping a good relationship with your payday lender doesn’t legally prevent you from getting sued after default, it does help your case if you need them to be more flexible with you in the future by showing them your commitment to repaying the loan.

If you’re already in default:
If you’re already in default, then you can still potentially salvage the situation if you remain diligent. Here’s how:

  1. Contact your payday lender immediately – do not wait on this step. At this point you could be sued at any time so reach out to them and ask for a payment plan to get out of default.
  2. Don’t miss one payment on your payment plan – after you’ve set up a payment plan, do not pay late or miss any payments. This history of paying regularly shows your good faith in paying off the debt and will work in your favor if the situation does make it to court.
  3. If you’re being sued, seek pro bono legal counsel – do an internet search to see if there’s a legal aid in your city – this will offer you the opportunity to seek out free legal representation so you can work for the best possible outcome in court.

Payday loans lead to a scary and vicious cycle of debt. However, if you focus on eliminating them from your life once and for all, you can make headway and reach financial freedom. After that happens, the best defense is to avoid payday loans at all costs in the future.

Image Credit: Davide Gabino

This post was published by Shannon, Community and Customer Support Manager for » ReadyForZero. ReadyForZero is a company that helps people get out of debt on their own with a simple and free online tool that can automate and track your debt paydown.


Consumer Advocates: Banks Bringing Back Payday Loans

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Home > Tools & Resources > Headlines > Consumer Advocates: Banks Bringing Back Payday Loans

Consumer Advocates: Banks Bringing Back Payday Loans

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August 31, 2012
Binker, Mark

Although North Carolina outlawed payday lending over a decade ago, the state is again seeing the short-term, high-interest loans — this time from banks. Alabama-based Regions Bank offers a product called “Regions Ready Advance,” which lets consumers borrow up to $500 by pledging their next direct deposit. “If they weren’t a bank, they wouldn’t be able to offer this product in North Carolina,” said Chris Kukla, senior vice president at the Center for Responsible Lending (CRL). Kukla says the effective interest rates for Ready Advance loans could amount to 365 percent annually. However, the bank says that the product is essentially a small-dollar line of credit and does not fit the term “payday loan.” North Carolina allowed payday loans from 1997 until 2001, but lawmakers passed legislation that authorized the store-front shops to expire. The fees, though usually small, amounted to annual percentage rates that exceeded North Carolina usury laws. Regions Bank began offering its Ready Advance product 18 months ago, essentially breaking a de facto embargo on the practice. SunTrust, a much larger bank, is considering a similar product. Fees for payday products were typically $16 for every $100 borrowed, compared to Regions’ Ready Advance product, which charges $10 per $100. Although that seems like a small amount, CRL says that it amounts to an effective annual percentage rate of 365 percent. Kukla said that consumers have better options, such as a low-cost, small-dollar loan from the N.C. Employee’s Credit Union, which charges only a few dollars upfront. Across the country, regulators like the Consumer Finance Protection Bureau are noticing this trend of bank products that are similar to payday loans, but most banks operate under state banking laws rather than federal regulators.
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