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, “fair” credit guarantees all consumers equal credit opportunities, including low-cost credit for those with good credit, according to federal guidelines.
A predatory lender can also persuade a borrower to accept unfair terms through fraudulent, extortionate, exploitative, or unscrupulous acts, 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 can also include fraudulent, deceptive, and unfair tactics that lenders use to “fool” consumers into making loans they cannot afford, according to the US Attorney’s Office for Eastern Pennsylvania, which cites high mortgage costs as contributing to borrowers People who cannot afford to keep their homes in good condition.
The Center for Responsible Lending, a North Carolina-based nonprofit research organization dedicated to ending predatory lending, released a study in late September examining the “persistent harms of expensive consumer loans,” a form of predatory lending that “Rent” includes “a-bank” loans. The group says they found robbery loans had a greater impact on people of color and low-income people.
High-priced lenders say they provide cash to risky borrowers with low credit ratings who cannot get credit from traditional banks.
Here’s a look at what consumer finance organizations call pirated loans.
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 labeled salaried workers and offered week-long loans with triple-digit interest rates of up to 500%, according to the Pew Charitable Trusts, a Philadelphia-based public policy organization.
In contrast, consumers with good or excellent credit (720-850) may qualify for personal loans with interest rates ranging from 10.73% to 12.5% that are repaid over multiple years, according to Bankrate, a New York City-based financial services company.
Today, payday loan amounts are generally $500 or less, but 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 Washington, DC-based nonprofit, has a breakdown of where these loans are legal and illegal on their website.
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, 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.
According to Car Title Loan Lenders USA of Newport Beach, California, eight states, including California, have restrictions on auto loans, while 24 states and the District of Columbia ban them.
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 state attorneys general last year urged federal regulators to ban the practice, which still exists and is replacing payday loans in some states, USA TODAY found.
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. According to the Financial Industry Regulatory Authority (FINRA), a regulator of brokerage firms and foreign exchange markets, taxpayers receive cash equal to the refund immediately, minus one or more fees.
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.
New America, a nonprofit think tank in Washington, DC, said a select number of banks could 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 Lending Circles website, funded by the San Francisco-based nonprofit Mission Asset Fund, includes names and contact numbers of lending groups across the country, and a person can find them by entering a zip code.
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