Latest posts by Henry Githinji (see all)
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Payday loan criminals’ vs the good guys
Payday loans provide households with short-term liquidity but create long-term debts for borrowers. It is a legitimate policy concern that many people feel compelled to use payday loans. Many payday lenders tend to take multiple loans at once which will ultimately lead to defaulting. The payday lending industry consists of short-term lenders who do not fall in the category of deposit-taking institutions. This basically means that there are no regulations because most of the statutes applied in the major financial institutions are not applied here.
There have been many concerns as to the way the payday loan industry is rifled with high borrowing costs, spiraling debts as a result of loans being rolled over, unjustifiable collection practices and insufficient disclosure of contract terms. Basically, the payday loan industry has many key players; some are out to help the poor in their hour of financial need while others are there to take advantage of them.
Techniques used by payday criminals’ vs responsible lenders
One of the techniques that payday loan criminals have begun to use in some countries is to use the tax-payer funded court system to put pressure on the borrowers. The payday lenders will go to court and get a judgment against the borrower. This technique is successful especially when borrowers fail to show up to defend themselves which is possible if the paperwork expecting them to go to court never reached them.
After a payday lender gets this judgment, he or she asks the judge for an “examination” which is intended to assess if the borrower has bank accounts or tangible assets that can be seized to recover the loan. Payday loan criminals can ask for several examination sessions whereby the borrower fails to appear because they are obviously not aware of the proceedings. When they fail to appear over a certain period of time, the payday criminal lender will ask for “a body attachment” which will mean imprisonment for the borrower until the next hearing or until the time when he or she has produced bail money that equals the debt amount that is immediately given to the payday lender.
Payday loan criminals are increasingly using this method because it not only gets them the original amount lent out but also many kinds of add-on interests and penalties. Payday criminals also give borrowers multiple loans so that they can trap them and take advantage of them in every way possible.
Responsible payday lenders will never do this. If they have realized that a specific borrower is not in a position to pay the loan, he or she may be denied further assistance. Additionally, they target the salary of the borrowers whereby they take what is owed to them without touching anything extra or alternatively they can apply a bank overdraft.
As much as payday loans have helped people tremendously so have they cost them their financial freedom. Differentiating between payday loan criminals and responsible lenders is indeed very easy especially after the first loan. Lenders should also try as much as possible to deviate from seeking multiple loans from the same payday lenders because that is what usually leads to repercussions.