Payday loans. You may have heard a lot about them in the news lately. They are often used as a temporary stop-gap means of making ends meet for many Americans. While most people who utilize this form of short-term loan usually understand that they are not entering into a good deal, few realize just how raw of a deal they are getting.
In Alabama, cash advance or payday lenders will lend their customers a small amount of money, usually just a few hundred dollars, with a promise to repay the loan plus fees and interest within 14 or 30 days. If the entire amount is not paid, the loan can be partially repaid and once again “renewed” for another 14 or 30 days. For anybody who does not have the ability to repay that amount in the time allowed, which is most people who utilize this service, they remain stuck in the endless cycle of debt. Then, what started out as paying back a relatively “small” amount on top of the initial loan amount turns into a perpetual cycle of repaying hundreds each month.
Under state law, these loans can top out at 456% APR, or annual rate of repayment when considering the fees charged. These fees reveal themselves as truly hideous when compared to other returns seen by other lenders such as credit cards, which top out at less than 30% APR. The situation is even worse considering that a large percentage of borrowers often carry more than one $500.00 payday loan at a time, even though this is against state law.
Payday loans have made news recently for a few reasons. The Alabama State legislature has been looking at the issue and debating whether to enforce laws already on the books relating to them. Under current state law, a payday loan borrower may only take $500.00 in such loans at a time. The problem with this is that there is no statewide database to track them. As a result, payday lenders can bury already struggling Alabamians under even more debt (or allow Alabamians to bury themselves under even more debt, depending on your point of view).
Even more recently, the President came to Alabama and made payday loans the centerpiece of his Birmingham speech last month. While here, he argued for more Federal oversight of the payday loan industry. While that may or may not be a wise idea, certainly some action is needed to curb the excessively oppressive nature of this legalized racket here in Alabama. Right now, the matter of a centralized database being created is working though the Alabama courts. Pending the final outcome of an appeal by the payday lending industry we should have a statewide database up and running to allow for the enforcement of current state law on the matter.
In the mean time, please take this advice: don’t get into the revolving door of payday loan debt. It is easily the most destructive debt one can incur, with the possible exception of student loans. If you are in a situation in which you need a short term loan, seek out assistance from a family member, a friend, or your Church. You will find that people are surprisingly willing to offer a hand to those in a fix.
As a last resort, consult a bankruptcy attorney before going to a payday lender. Even if filing for bankruptcy relief is not the best option for you, we may be able to come up with an alternative to the payday loan option.