An Interesting Analysis of Payday Loans The Payday Loan Cycle By David Fishman “Pay Day Loans” might be a necessary evil but however necessary, they’re still an evil. By Nevada statute, it is referred to as the DEFERRED DEPOSIT LOAN, HIGH INTEREST LOAN in Chapter 604A of the Nevada Revised Statutes. This type of lending flourishes because Nevada doesn’t have any “usury” or interest regulating statutes. Thus, lenders can charge whatever the market will bear, subject to unique regulations. Typically, when Mary Public needs a short term infusion of cash, they secretly go to one of these lenders and give the lender a postdated check (deferred deposit) for a set sum, which is lent. Then, the date that check can be deposited and Mary doesn’t have the funds in the checking account, the next step is usually to go to the lender, pay an additional fee, plus interest, for an extension, or to repeat the process with a different lender so that Mary can pay the first lender. Or Mary may do both; that is get the re-write and also make an additional loan from lender number two. That’s the point a vicious cycle begins. It’s the end of week two and now both loans are due. What does Mary do? Rewrite again? Generally, the borrower goes to lender number three to borrow money to pay lenders one and two or borrow enough from lender three to get the re-write needed for the first two loans. Five or six weeks later the issue is totally out of control, the amount borrowed unmanageable. Debt servicing is now out of the question. What should Mary do? There is no answer in Nevada. When the total gets close to or $10-12,000, the word “bankruptcy” keeps popping into Mary’s mind. But who files BK on such a small sum? No ethical attorney would or should counsel that a client file bankruptcy for such a small sum. Now, the collection phone calls have started. The pressure is on, particularly if Mary has not told husband John about the loans. And since this kind of borrowing is generally looked upon as sleazy and shameful, it is often not discussed. People in debt do not want to consider the consequences of being in severe debt. Fortunately, a new hero rides in to save Mary, or at least postpone the inevitable. Mary’s new hero and the solution to her problems is the ever believable Mr. Montel Williams who on TV is espousing the virtues of a new “online” lender who can wire funds into your bank almost instantaneously. An “online lender.” Wow! Let’s look into this new world of lending. And Mary finds two new worlds of online lending. Ever wonder what the new Native American Indian is doing with all that oil or gaming revenue? Ever wonder what those offshore islands companies are doing? They are lending money at the same horrendous interest rates the “Pay Day” loan shops are. The big difference is that they are lending to individuals in states without usury laws and at the same time to states with usury laws. Mary’s prayers have been answered. Thank heaven for Montel Williams and late night television. But let’s not jump to conclusions too quickly. Have Mary’s prayers really been answered? Yes, Mary can borrow money from her “on line lenders,” some of which are legitimately licensed and bonded in their respective states. Generally such lenders will be recognized by the courts in your state, can engage local counsel and file suit. But what of the lenders headquartered in a foreign country or the Indian Nation lenders claiming that they are recognized by the United States Government as a foreign nation? Generally, you’ll find that these lenders aren’t licensed and bonded in your state, claiming they don’t have to be. Indian lenders make broad sweeping statements on their websites about being recognized as independent nations by the Federal Government. They refer to an Act of Congress going back many years for recognition. The websites tell you what Indian nation owns and operates the lending entity. They’ll refer to tribal councils and Indian court systems, and some even refer to mandatory arbitration in cases of payback disputes. They do this to manipulate unknowing customers like Mary to honor their pay back obligations. Auto drafting, having the payment automatically withdrawn from your bank account, is a commonly demanded and required practice. Having no recognition from the US government, the foreign lenders pretend they do, and auto draft from your bank coupled with veiled statements about how powerful they are and the dire consequences of non-payment. These two forms of “on line” lending appeal to and play on emotion. They recognize that most applicants have an extreme hardship and are heavily in debt with their local lenders. They are nice in the beginning until there is a failure to pay. Then, in an about face, nastiness and ruthlessness becomes their custom. Why? Because it is the only real weapon they have. The most important point is that unless Mary makes some major changes in her debt-credit approach to borrowing to sustain a lifestyle she cannot afford, almost instantly she will be in the same position with the “on line” lenders as she is with the local pay day lenders. And she is right back in that vicious borrowing cycle. Once in default with these lenders, the collection process is more hard-nosed. They won’t honor a demand to stop the auto debits to the bank account creating bank fees on top of the interest, late fees and collection fees. Mary will be forced to close the bank account now loaded up with NSF bank fees and costs. These lenders employ ruthless scare collection tactics that would not be permitted by a collection entity in the USA. These Indian and foreign lenders do not conduct their collection of unpaid debts by American law or standards. Indian lenders form subsidiary companies to which they assign past due accounts for collection. This sub-company claims they now own the debt and Mary should pay them. If they fail to collect, the sub company will employ an American collection agency. The continuing innuendo is that by representing themselves as an American company rather than a tribal lender, they have the same power to collect as does any legitimate American lender. Because most Americans who borrow fear the American collection agency, an assignment to such an agency doubles the insinuation that the debt has somehow gained legal status through the American collection agency. Foreign lenders take it one step further. If a local collection entity is not successful these foreign based lenders have now banded together to create their own “off shore” collection agency that doesn’t follow the edicts, rules and regulations of the Fair Debt Collection Practices Act governing the conduct of third party debt collectors in the America. By not operating in the US, they can literally say anything to manipulate the debtor. An example might be a threat of reporting the borrower to his state’s attorney general. They will also say that a warrant is being issued for the borrowers’ arrest which can be stopped with a payment in full. They tell many that an investigation is being launched into all the borrower’s loans. These innuendos are fraudulent. This foreign collection entity literally has hundreds of phone numbers, hundreds of collectors and one never speaks to the same person twice. You can leave a message, but they never return a phone call. If they can fool the bank and take the money by an ACH draft they will do it. Once done, you cannot stop it and the money is gone. As a debtor, or debtor’s agent, if you show any kind of intelligence and challenge to what they say, they immediately hang up and the process begins all over again with another collector. So before Mary understands what is happening with these “on line loans” she‘ll find herself in the same situation with either the Indian Nation lenders and/or the foreign lenders. Her debt load has doubled or tripled, the phone is ringing off the hook and she’s afraid to answer. So, what does Mary do now? Is this you? Or is it your friend or relative who has this problem? Do they think you don’t know, but you do? There are solutions. Sometimes the answers are quite simple with incredibly good results. Other times solutions will require a program designated to eliminate the debts over time, coupled with a lot of discipline and sacrifice. Are you Mary? If so, you need to think about your situation and make an informed decision to do something about it. Ambivalence and delay will simply cost you more and more money. If you are Mary’s friend, let her know you are aware and help her reach that decision. Persuade her to pick up the phone and seek the help she needs. No obligation; just education, information, some counseling and reassurance that there are solutions. When it’s all over, she’ll love you for it! The above are the opinions and statements of David Fishman as an expert in debt intervention and debt collection. The information is not meant as legal advice. If you have any questions or concerns you should consult your own personal legal or financial advisor. David Fishman can be contacted at his company Paladin Intervention home of Arbitronix and Debtbusters. 702 250-2700 9:00 am to 3:00 pm daily.
Posted on: Mon, 17 Mar 2014 19:05:32 +0000
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