[Replay] Predatory Lending – Part VI

With the moratoriums on evictions* and foreclosures expiring this month, predatory lending practices will sadly likely be more prevalent this summer. Given that, we’ve decided to take a pause on our retirement series and revisit our predatory lending series.

*Certain renters in high-transmission areas may still be protected from eviction until October 3rd – review this CDC document for more information!

This week we’ll return and conclude our series on predatory lending and discuss possible alternatives to predatory loans.

The best resource, if feasible, is your own savings account. You don’t have to pay interest when you borrow from yourself! This is why developing emergency savings, by putting aside a regular amount each month or each paycheck, especially when your financial situation is stable, is so critical.

If you’re considering these predatory loan options because you need to repay other loans, working out repayment options with creditors is another consideration. Often when borrowers fall behind on payments they don’t think to contact their creditor to see what options they have. Especially if you’ve been a reliable borrower in the past, and you’re not too far behind, many creditors will provide you feasible repayment options to help you get back on track.

Local, state, and federal agencies and organizations can be invaluable for short-term financial needs as well. Contacting social services and local non-profits and religious institutions can connect you to temporary resource to help you get through your financial rough patch.

Depending on your credit, you may also be eligible for credit union and bank loans, providing you loan products with lower interest rates and less predatory features.

Other options can include salary advances, credit card advances, and loans from friends and family. However, these options aren’t always feasible and are often undesirable for one reason or another. The important thing is to consider all of your options before deciding on the predatory loans we’ve discussed over the past few weeks.

If you have any further questions, please let us know!

[Replay] Predatory Lending – Part V

With the moratoriums on evictions* and foreclosures expiring this month, predatory lending practices will sadly likely be more prevalent this summer. Given that, we’ve decided to take a pause on our retirement series and revisit our predatory lending series.

*Certain renters in high-transmission areas may still be protected from eviction until October 3rd – review this CDC document for more information!

This week we’ll return to our discussion on predatory lending and discuss overdraft loans and rent-to-own contracts.

Overdraft loans, or overdraft protection, is a financial product that will temporarily cover you if you bounce a check or overdraft with a debit card, providing you a loan to cover that expense. However, the fees can be very expensive, from $10 to $40 per transaction, and the interest charged is often at a very high rate that isn’t readily disclosed. An $80 overdraft can carry fees and interest of over $20 for just a one-week repayment, resulting in an equivalent APR of over 1000%! As a comparison, a line of credit, at 19% APR, would have interest and fees of less than a dollar for an $80, one-week loan.

Next, we’ll discuss rent-to-own contracts. Rent-to-own contracts are agreements where the buyer will pay monthly or weekly rental payments for merchandise, such as electronics or furniture, and once they’ve completed all of their rental payment, will have ownership of that merchandise. There are a few catches, however. There are very few regulations regarding rent-to-own contracts. As such, their high interest rates are rarely disclosed, and there are no limits to late fees, nor much protection against repossession. Furthermore, as a rental contract, no equity is built up with each payment, meaning if you miss payment number 76 of 78 and the item is repossessed, you’re unlikely to get any money back.

Next week we’ll return and wrap up this series and discuss alternatives to predatory lending.

[Replay] Predatory Lending – Part IV

With the moratoriums on evictions* and foreclosures expiring this month, predatory lending practices will sadly likely be more prevalent this summer. Given that, we’ve decided to take a pause on our retirement series and revisit our predatory lending series.

*Certain renters in high-transmission areas may still be protected from eviction until October 3rd – review this CDC document for more information!

This week we’ll return to our discussion on predatory lending and discuss refund anticipation loans and checks.

Refund anticipation loans are short-term cash advances made against an anticipated income tax refund. Tax filers are given a lump sum early and are asked to repay that loan, with interest and fees, once they receive their tax refund. These loans often have high fees and APRs above 100%, and borrowers may receive their money only a week or two before they receive their tax refunds.

As of April 2012, FDIC-insured banks are no longer allowed to offer refund anticipation loans, but less regulated financial institutions and certain tax preparation companies often can. Starting in 2013, many refund anticipation loans were replaced by refund anticipation checks.

Refund anticipation checks are temporary bank account set up for tax filers, where filers do not have to pay for their tax preparation and filing fees up front and instead pay those, along with a refund anticipation check fee, once they receive their tax return. These fees typically cost anywhere from $25 to $60, and along with excessive filing and tax preparation fees, can rob low-income tax filers of hundreds of dollars at tax time. Limited-resource households, as well as families who rely on the Earned Income Tax Credit (EITC), are particularly vulnerable to this predatory practice, many of which are eligible for free tax preparation and filing through VITA sites and other resources. For more information on VITA, be sure to visit irs.gov.

Next week we’ll return and discuss overdraft loans and rent-to-own contracts.

[Replay] Predatory Lending – Part III

With the moratoriums on evictions and foreclosures expiring this month, predatory lending practices will sadly likely be more prevalent this summer. Given that, we’ve decided to take a pause on our retirement series and revisit our predatory lending series.

This week we’ll return to our discussion on predatory lending and discuss car title loans.

Car title loans involve cash advances in exchange for putting up your car as collateral. In order to be eligible for a car title loan, borrowers must have a free and clear title. Once they’ve appraised your vehicle’s value, the maximum loan amount is determined, generally for no more than a third or half of the value of the car, meaning borrowers are putting their vehicle at risk for a loan that is less than half of the car’s value. Loan terms are as short as one month with annual interest rates that are often in the triple digits!

In Virginia, there are a number of regulations aimed at limiting the impact of car title lenders. Car title loan interest cannot exceed 22% per month (which still equals an APR of 264%!), and loan terms must be for at least 120 days. Lenders cannot make car title loans to individuals who already have a car title loan outstanding, and car title loans cannot be extended without the lender filing the title of the borrower’s vehicle with the DMV. Payday lending companies that offer car title loans must do so from a separate location that does not offer payday loans; however, many predatory lenders have maneuvered around this restriction by creating separate locations next door to one another or in the same shopping mall.

Starting in January 2021, a number of new regulatory changes will be introduced to Virginia. Car title loans will be capped at 36% APR, and the minimum loan term will be lengthened to 6 months. Like payday lenders, car title lenders will be required to make an effort to ensure borrowers are financial capable of repaying the loan on time.

Next week we’ll return and discuss refund anticipation loans and refund anticipation checks.