Monday, December 5 2022

Financial watchdog groups have raised concerns that predatory lenders are taking advantage of low-income Americans who need quick cash while rising inflation weighs on consumers.

So what is a robbery loan?

Robber loans impose unfair or abusive credit terms on borrowers, including triple-digit interest rates and tight repayment windows. Meanwhile, a “fair” loan guarantees that Equal credit opportunities for all consumers, including low-cost credit for those with good credit, in accordance with federal guidelines.

A predatory lender may also use fraudulent, coercive, exploitative, or unscrupulous acts to persuade a borrower to accept unfair terms, According to Orlando-based Debt.org, an online site that provides advice from financial experts. An example is lenders reaching out to borrowers with credit problems or who have recently lost their jobs.

Predatory Lending Practices may also include fraudulent, deceptive, and unfair tactics lenders use to “fool” consumers into making loans they cannot afford, according to the US Attorney for Eastern Pennsylvania, who cite high mortgage costs as contributing to borrowers who cannot keep their houses in good condition.

A person rides a scooter past a check cashing and payday loan store in downtown Los Angeles on March 11, 2022.
PATRICK T. FALLON/AFP via Getty Images

The Center for Responsible Lendinga North Carolina-based nonprofit research organization working to end predatory lending released a study on it in late September examined the “persistent harm of expensive consumer loans,” a form of predatory lending that includes “rent-a-bank” loans. The group says they found robbery loans had a greater impact on people of color and on low incomes.

High-priced lenders say they are making cash available to risky borrowers low credit scores who cannot get credit from traditional banks.

Here’s a look at what consumer finance organizations call pirated loans.

What is a Payday Loan?

Payday loans, a short-term advance on the promise of repayment on the next paycheck, have been around since the early 20th century.

They were called salary lenders and offered week-long loans with triple-digit interest rates of up to 500%, according to the Pew Charitable Trustsa Philadelphia-based public policy organization.

In contrast, consumers with good or very good credit ratings Scores (720-850) may qualify for personal loans with interest rates ranging from 10.73% to 12.5% ​​that are repaid over multiple years Bankrate, a New York City-based financial services company.

Today, Payday loan amounts are generally $500 or less, however at least 16 states and the District of Columbia have banned them. That’s because consumer advocacy groups in political red and blue states have been working to sack these lenders, saying they offer predatory loans that target low-income borrowers.

The Consumer Federation of America, a non-profit organization based in Washington, DC, has a breakdown of where these loans are legal and illegal on its website.

What is a car title loan?

A car title loan allows borrowers to use their car as collateral to get a loan that can range from a few hundred to several thousand dollars. Many of these loans can be granted with triple-digit interest rates of up to 300%.

For example, in Arizona, the APR ranges from 120% to 204%, depending on how much is borrowed.

James Hollis of Tucson, Arizona, borrowed $3,050 to get his car's transmission repaired, but his two auto title loans will ultimately cost him nearly $14,000.
James Hollis of Tucson, Arizona, borrowed $3,050 to get his car’s transmission repaired, but his two auto title loans will ultimately cost him nearly $14,000.
Cassidy Araiza for USA TODAY

James Hollis, who is living on Social Security disability payments, borrowed $3,050 this year to get his transmission repaired, but his two auto title loans will ultimately cost him $13,791 at triple-digit interest rates.

If a borrower defaults on a loan, the lender can take back the vehicle.

Eight states, including California, have restrictions on auto title loans, while 24 states and the District of Columbia ban them. according to Car Title Loan Lenders USA of Newport Beach, California.

What is a Rent-a-Bank Loan?

A Rent-a-Bank loan is when a non-bank lender, such as a according to the California Attorney’s Office.

Unlike a car title loan, a Rent-a-Bank loan is unsecured, meaning the lender has no collateral, such as a home or vehicle, to take possession of if the borrower fails to repay their loan. Loans can range from a few hundred to several thousand dollars in lump sums or lines of credit.

California Attorney General Rob Bonta and 20 attorney generals last year urged federal regulators to ban the practice. which is still occurring and replacing payday loans in some states, USA TODAY found.

What is a tax refund loan?

A tax refund loan or refund application loan are short-term loans made by non-bank lenders. You are covered with an expected tax refund. Taxpayers receive immediate cash equal to the refund, minus one or more fees, according to the Financial Industry Regulatory Authority (FINRA), a regulator of brokerage firms and stock markets.

These loans come with numerous fees, such as B. loan application, tax preparation, check processing and a “no worry” guarantee from the lender regarding the amount of the refund.

These fees also carry interest of at least 36%.

Adding it all up can result in paying at least $200 for a quick $2,000 tax refund, according to FINRA.

The organization says the best step is to have the tax overpayment refunded electronically by the Internal Revenue Service, which can take up to eight days to a checking or savings account.

What cheap credit options are there?

New America, a non-profit think tank in Washington, DC, said a select number of banks can offer up to $1,000 in personal loans with interest rates around 12%. The website also lists seven community development financial institutions and credit unions across the country that offer relatively small dollar loans with interest rates ranging from 7.99% to 33%.

The nonprofit also said cash advances from credit cards can be easy, but are expensive.

New America also sponsors loan circles, where a small group of people lend each other money at no interest each month. Circles include six to twelve people and loan amounts range from $300 to $2,400. Loan disbursements can be reported to credit reporting agencies so borrowers can build a good credit history. But this would not help a person with an immediate need, the website said.

The website borrow circlessponsored by the San Francisco-based nonprofit Mission Asset Fund, contains names and contact numbers of credit groups across the country, and a person can find one by entering a zip code.

Do you have a business or investigative story tip? Reach the reporter at craig.harris@usatoday.com or 602-509-3613 or on Twitter @CraigHarrisUSAT or linkedin.com/in/craig-harris-70024030/

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