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Predatory lending has been with us for as long as I can recall. When I use to watch a ‘gangster’ movie there would be a shadey character that was loaned money without the hassle of paperwork or committee approval – often referred to as a ‘shark’ because of the loan repayment terms. While the loans were convenient, the terms were a rather extreme where you paid a high interest rate with a short repayment. If these terms were not met the borrower would unfortunately have to pay a penalty with a broken limb or two.
Predatory lending offices have stepped in and taken the place of the nefarious character mentioned earlier. The FDIC broadly defines predatory lending as ‘imposing unfair and abusive loan terms on borrowers.’ Predatory lending offices (i.e. Advance Cash and Payday Loan) have become very common place in neighborhoods lower income (never notice any in affluent communities) neighborhoods. However, what many people are not aware of is the fact that big banks are also making payday loans at the same high interest rates. If you beleieve you are the victim of predatory lending, seek assistance right away.
No longer is the ‘big bad wolf’ in a small storefront office, he/she is also behind the brick and mortar of the reputable bank. While banking institutions refer to their loans as direct deposit loans they are the same as the neighbor Payday Loan facility. Borrowers may be unaware of the high interest rate risk because they are not explained in annualized terms. When a borrower takes out a loan it is typically for a two week term he/she writes a post-dated that has a 30% interest rate to be cashed at the time of the loan maturity.
If the check cannot be covered the loan is extended for an additional two week at which time an additional 30% interest is applied. For example, if a loan is taken out at $200 that could not be paid off within two weeks the balance due has gone from a $200 loan to a $345 balance due. The borrower is paying 73% more than the initial loan amount is less than one month. Having to pay back a loan at these rates makes it even more difficult to pay back the loan. The borrower was already in a financial quandary and this loan has not eased the burden it has only added to his/her inability to pay the debts owed.
Loans at these high interest rates have allowed the predatory lending industry to become a $30 billion a year industry. These lending practices erode the very fiber of our neighborhoods for it keeps borrower in a bind where he/she can never get ahead financially.
It is not enough just to survive in today’s economy. If the bottom continues to fall out from under these individuals we will continue to see the deterioration of a class of people.
Ronald Wadley resides in Chicago, IL and is a Contributor to healthyblackmen.org. He has nearly 20 years experience in financial planning and analysis.