The National Consumer Law Center Looking Into Pay Day Loan Lenders Practices

The National Consumer Law Center, a nonprofit advocacy group working on behalf of low income and economically disadvantaged consumers, is currently investigating bad credit lenders practices of automatically withdrawing payday loan payments from direct deposit Social Security benefit checks. They launched a campaign with the Treasury Department to assist with this endeavor.  The center has requested specific rules for any payday loan tied to Social Security benefit check income.

Bad Credit Lenders and Social Security

The center requesting the Treasury require financial institutions to evaluate whether a borrower can afford the payday loan if the loan security is a Social Security check.  In addition, the loans should carry annual percentage rates, including fees, of no more than 36 percent, have a term of 90 days or one month per $100.00 borrowed, and allow payment installments. It is requesting the Treasury to prohibit bad credit lenders from requiring borrowers to provide electronic access to a bank account to pay the loan.  If borrowers choose to allow the lender access to the account, they should have the right to refuse the lender access at any time.

Direct Deposit as Loan Security

The campaign is in response to the federal government’s effort to “go green” by implementing the practice of direct deposit for millions of Americans who receive Social Security and other federal benefits from paper checks to electronic payments.  In March, new enrollees for Social Security, Supplemental Security Income, Veterans, Railroad Retirees and Federal Civil Servant retirees’ benefits began receiving their monies through electronic transfers of funds. Beneficiaries that currently receive paper checks for these benefits will be changed to all-electronic payments beginning March 1, 2013. The center concludes that with this schedule of moving all recipients to electronic deposit allows the number of recipients eligible for payday loans through bank accounts and prepaid debit cards to almost certainly increase within the next several years.

Up to 1800 Percent with Bad Credit Lenders

Payday loans are on average 14 days for repayment of the loan amount. The fees charged appear reasonable to the lender at first glance.  Payday lenders are required to provide you with the finance charge and the annual interest rate on a yearly basis. However, when annualized, they can add up to triple digit interest rates or more.  There have been borrowers whose interest rates have reached as high as 1800 percent when the loan is rolled over multiple times and fees accrued. Many of these lenders have an extensive history of being located in mostly low income neighborhoods where payday loans are a quick financial fix for low income Americans.

Payday loan Statistics Lenders Protect People in Desperate Need

In response, the lenders that provide payday loans indicate they are serving people in desperate need of a quick financial fix.  Payday loan statistics says that forty one percent of unmarried Social Security beneficiaries rely on their Social Security check for 90 percent of their income.  There are many consumers that use payday loans, but the center is requesting the Treasury step in to protect beneficiaries of Social Security Benefits who may find themselves trapped in a cycle of debt they cannot escape.