In recent years, the payday cash loan industry has raked in more than $28 billion in annual loan volume in the thirty-seven states where payday cash is legal. Economic studies corroborate the notion that consumer credit, even at elevated interest rates, generally improves welfare. In fact, a recent report issued by New York's Federal Reserve Bank refutes the argument that the payday advance loan should be classified as 'predatory', finding instead that it enhances household welfare. At the same time, while the offers of easy payday loans are tantalizing to the average cash-crunched consumer, prospective borrowers should be selective in their choice of a payday loan store and beware of unreasonable lender fees. This is because predatory payday advance fees exact a $3.4 billion toll on American families each year, according to the Center for Responsible Lending. By familiarizing themselves with the general legal provisions and consumer protection measures in place, as well as the standard fees charged by payday cash lenders, borrowers will be better equipped to identify and avoid unreasonable payday loan fees.
In states where the payday advance is not prohibited, usury limits are applicable- They place a cap on the interest rate, which is defined by the annual percentage rate (APR). The majority of states have usury laws banning interest rates that exceed a specific APR. On October 1st of this year, Congress' law imposing a 36% APR ceiling on loans to military personnel took effect. A number of fast payday loan companies have circumvented some states' usury laws by collaborating with lending institutions chartered in another state without a usury cap. To safeguard consumers against the debt cycle, some states require lenders presented with a specific number of loan renewals to offer the no faxing payday cash advance loan at a lower interest rate and for a longer term.
Some of the most common charges and fees arising from a payday loan transaction and which should be scrutinized to ensure reasonableness are as follows:
1. Interest
A borrower's loan amount accumulates interest from the day he or she receives the payday cash to the day it is repaid. A number of states cap the interest rate that may be charged on a fast cash payday loan. Fees can oftentimes be characterized as 'exorbitant' and be deemed unreasonable when individuals renew the loan month after month. Due to the grossly inflated rates of interest that lenders sometimes impose in such circumstances, borrowers can find themselves in a worse position than when they first took out the payday loan.
Some of the most prominent payday advance companies, such as Check 'N Go and Advance America, charge $15 on a $100 payday cash loan. However, finance fees are usually in the range of $15 to $30 per $100 requested, for every two weeks. This translates into an APR range from 390 to 780 percent. The Consumer Federation of America's survey of 100 internet payday advance businesses across the nation found the most common rate to be $25 on a $100 loan, or an APR of 650% if the fast payday loan is paid off in two weeks. Typically, consumers request payday cash in an amount ranging from $100 to $1500, with an interest rate ranging from 390 to 900 percent.
Some states have small loan laws allowing cash advance loan providers to charge any fees or interest rate that borrowers consent to pay. Other states place caps on finance fees, such as origination charges and interest rates. For instance, in Illinois, no payday advance creditor may charge in excess of $15.50 per $100 borrowed over the loan's term.
2. One-time fees
Borrowers who request an easy payday loan for the first time might have to pay a one-time fee (a sort of membership fee) of $10 to $15. They might also be required to pay a one-time fee of $10 to set up their account.
3. Service fee
Consumers must often pay administrative fees, namely handling, origination, processing and verification charges. Sometimes, the service fee is included in the interest that is charged on the loan.
4. Loan repayment fee
Borrowers may avoid this fee by repaying their payday loan in cash.
5. Early repayment fee
Payday advance providers may charge an early repayment fee to individuals who undertake to pay their loan prior to its maturity term.
6. Extension or roll-over fees
Borrowers who lack the funds to repay their payday loan may request an extension or roll-over of their loan. However, lenders will charge them an additional fee (roll-over or extension fee) for refinancing the payday advance. Furthermore, interest will be added to the existing interest. State law governs whether or not lenders may allow their customers to extend their payday cash until the next payday.
7. Bad check fees
If a payday loan customer's account has insufficient funds to cover the check in full by the next payday, the lender may impose an additional fee for the former's failure to pay. An advance payday loan company may charge high bounced check fees, as well as collection charges. An unreasonable fee would result if, for example, a payday lender deposited the customer's check prior to the date agreed upon, causing the latter's check to bounce and causing him or her to incur additional fees.
8. Collection fees
When an easy payday loan borrower defaults, the creditor may place his or her account into collection. Delinquent borrowers may be charged collection fees to cover this process.