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Consumer Protection: Payday Loan Debt

Michael Rapp July 1, 2020

A father-son tandem in Kansas City made $227 million in payday loans, pocketing $69 million in profits over a 10-year period, and walked away with a $1 civil fine. Many of the loans they made were unauthorized, and a key to their financial windfall was charging biweekly finance fees indefinitely.

The father was originally sentenced to 10 years in prison for racketeering, fraud, and identity theft and ordered to forfeit $49 million. However, the sentence was suspended by the Consumer Financial Protection Bureau, which collected $14 million in frozen assets and slapped on the one-buck civil fine. A court order to repay $69 million to customers was dropped because of the “defendants’ limited ability to pay.”

In tough situations and tough times, you may feel the need to turn to payday loans, and you’re not alone. Each year, according to Pew Charitable Trusts, 12 million people assume payday loans and pay $7 billion in interest charges. But beware. Many are scams, and all collect extremely high-interest rates, generally 390% or more. We at Stecklein & Rapp are dedicated to helping consumers in Kansas City, Missouri, Kansas City, Kansas, and Lincoln, Nebraska, know and exercise their rights when it comes to consumer credit and loans.

What Are Payday Loans?

Payday loans are generally short-term loans against your next income check, whether it be from work or even Social Security or an annuity payment. Many agencies offering these loans are brick-and-mortar, but lately, many have moved online, where it’s even easier to carry out a scam.

Often, these Internet-based payday loan services will first collect your pertinent information – name, address, Social Security number, and your bank routing information. After they get that information, they can – like the Kansas City duo – make fraudulent loans, extract endless service fees, or even sell your information to those who traffic in identity theft.

Laws That Protect Consumers

The Federal Trade Commission (FTC) has several laws and provisions to protect consumer lending, and it carries out enforcement as well.

  • The Truth in Lending Act of 1968 requires that the terms and conditions of all loans be spelled out clearly during the loan process.

  • The Credit Practices Trade Regulation Rule, administered by the FTC, aims to protect consumers by banning certain lending practices.

  • The Electronic Funds Transfer Act covers the use of ATMs, debit cards, direct bank transfers, and the like, and grants the consumer certain protections, including the recovery of unauthorized or illegal transfers.

The State of Kansas also has a statute governing short-term (no more than 30 days) loans of $500 or less, capping interest rates at 15%.

What to Do with Your Payday Loan Debt

Payday loans are considered unsecured debts, so they can be discharged through bankruptcy. However, if you took the loan just prior to filing for bankruptcy, you may be stuck with repayment. Another avenue for covering an onerous payday loan debt is through debt consolidation – taking out another, lower-interest-rate loan to pay it off.

Through negotiation and settlement, you may be able to reduce your payday loan debt by as much as 50%. If you mention bankruptcy as an option, the payday agency may view 50% as better than nothing, providing you some solid debt relief.

If you default on a payday loan, you can be sued. If the lender has your routing information, they can simply take the fees from your bank account – another reason to be careful when borrowing.

However, if you think you’ve been defrauded or assigned a loan you never agreed to, you can also sue the lender for redress, including financial refunds.

How Legal Counsel Can Help

Obviously, there are many pitfalls associated with payday loans and lending, with numerous legal hurdles and challenges. If you find yourself in trouble with payday lenders, with high loan debt, you need to consult with experienced attorneys immediately.

We at Stecklein & Rapp are consumer protection attorneys serving Kansas City, Missouri, Kansas City, Kansas, and Lincoln, Nebraska – plus surrounding areas. We’ll walk you through the laws and regulations protecting you and work for the most favorable solution to your situation. Contact us today for a free consultation.