Many people in Walnut Creek, Concord, and Antioch may wonder, what is a payday loan? Payday lenders offer small, short term loans with little or no credit check or income verification. They are usually small shops in strip malls. Typically the loans are for about $300 and are due in 14 days. Generally, the borrower writes a post-dated check for $300 but gets only $250, and in just two weeks the full $300 is due. The borrower can pay about $50 to extend the loan for another two weeks or pay the full $300. If the borrower fails to pay either the $50 or the full $300, then the payday lender deposits the post-dated check. These loans are easy and convenient but carry interest rates ranging from 100% to 500% on an annualized basis. How can that be legal? Payday lenders exploit loopholes in the usury laws so that even a 500% interest rate is legal. With interest rates like that, it’s no wonder payday lenders are popping up like weeds in the spring!
Most people who borrow from a payday lender have been turned down for traditional loans and only out of desperation take a payday loan. Too often, the person takes a second payday loan to pay the first and begins a downward cycle. Like quicksand, the payday loan cycle is nearly impossible to get out of. Soon the person – in dire financial straits before the first payday loan – has several loans with payments due every two weeks. Often the payments are taken directly out of the borrower’s bank account on payday, hence the name.
As the cycle continues, the borrower goes deeper and deeper in debt. Many borrowers will have up to 5 payday loans, usually from different lenders Soon some of the post-dated checks begin to bounce, marking the beginning of the end. As the checks bounce, the borrower incurs bounced check charges, further compounding the problem. Often on the verge of eviction due to unpaid rent, the borrower asks “How can this craziness end?” The answer might be bankruptcy. A bankruptcy is a federal court order that gives people a “fresh start” by forgiving debts including payday loans.
This is a general discussion of the law and should not be relied upon. Any person considering bankruptcy should consult a lawyer for a detailed discussion of his or her rights and options.
At the Law Office of Michael Primus, we have helped hundreds of clients get out of debt, stop wage garnishments, and start fresh through bankruptcy. If you live in Contra Costa County and have debt problems, contact us for a free in-office consultation. We have offices in Walnut Creek, Antioch and Hercules.