Know Your Rights as a Payday Loan Consumer

By: Javi Calderon
Know Your Rights as a Payday Loan Consumer

Payday loan lenders have been accused over recent years of conducting businesses that are unscrupulous and self-serving. Politicians and media alike have labeled payday lenders as “predatory”, claiming that they prey on their customers.

Surely some payday lenders are unsavory and shady business people, just like some doctors perform procedures the patient doesn’t necessarily need and some mechanics do expensive repairs that aren’t necessary – in every field there will be the few who are selfish and greedy and the majority who are trustworthy and honest.

Most payday lenders are performing a service that is beneficial for the community. Like all financial products – credit cards, investments, real estate – some consumers are bound to abuse payday loans and get burned for it.

There is a population of Americans with poor credit scores that would not be accepted for a bank loan if they applied for one. Many people in this country also live paycheck to paycheck. When faced with unexpected expenses these people turn to payday loans.

Based in northern Virginia, the Consumer Financial Services Association of America is an organization of cash advance lenders who promote responsible lending. Over forty percent of America’s payday advance lenders belong to the CFSA. The CFSA has set forth several guidelines for appropriate lending practices and customer service.

One of their goals is to raise customer awareness about proper practices. The CFSA sees payday lending as a niche financial service, not a product to be exploited. One of the popular complaints is that payday lenders charge too much. Most lenders charge between 15-17 dollars for a $100 loan. What customers and critics don’t know is that it costs the lender around $13.50 to process and extend the payday loan, so they’re really only making $1.50 off the transaction.

A $15 charge on a $100 loan translates to an Annual percentage interest rate of over 200%. Many states have caped their interest at 36% which limits how much a lender can charge to around $1.50 – not even enough to cover the expense of processing the loan.

Knowing your rights as a consumer is the best way to protect yourself from abusive lending practices. Know that you should have all fees and terms of your loan presented to you in writing before you sign. You also have the right to rescind your loan at no cost within one business day of signing your short term loan.

The CFSA has a process for customers to file grievances in which it will investigate and hear your case objectively. There are also federal debt collections laws that all debt collectors must adhere to. If someone is contacting you at work or threatening you with arrest or inappropriate language you should contact the Federal Trade Commission.