Borrowers Beware! Payday and Other Storefront Loans: Convenient but Costly
By Brent Adams
Updated 6-12-20, 2pm
Woodstock continues to advocate for policies that would protect people from predatory loans that cost 300% APR or more. The U.S. Senate has introduced a bill to cap rates at 36% APR for the duration of the crisis. The average APR on a payday loan in Illinois – before COVID-19 – was 296%. We are monitoring whether any lenders engage in price gouging during the crisis by raising their rates.
If you suspect price gouging, please let us know. E-mail email@example.com.
Instead of helping people weather a crisis, research shows that loans with triple-digit interest rates trap people in a cycle of debt, worsening their financial situation. More than four out of five payday loans are re-borrowed within a month, and the majority of payday loans are borrowed by consumers who take out at least 10 loans in a row, according to the Consumer Financial Protection Bureau.
The Cash Crunch
Your family may already be experiencing a cash crunch due to the COVID-19 crisis; maybe you see a cash crunch on the horizon; or maybe you are at high-risk for a major loss of income in the near future due to job loss or due to having to close your business.
Obtaining a loan from a financial institution – even a high-cost payday, installment, or auto title loan – may seem like a necessary evil under the circumstances, but a loan, while helping to meet short-term needs, may make your financial crisis worse and make it last longer than if you took some different steps before and when seeking a loan.
Before seeking a loan
- Hopefully, you have already received your economic stimulus payment from the federal government as required by the CARES Act. The payments are up to $1200 for individuals and $2400 for couples with an additional $500 for children under 17. If you haven’t received your payment, visit www.GetMyPaymentIL.org.
- The Threat of Garnishment. Some folks are at risk of having their stimulus payment garnished by a creditor or seized by their bank. If you fear this may happen to you (or it already has), and you live in Chicago or suburban Cook County, we suggest you contact Legal Aid Chicago at 312-341-1070. Our friends at National Consumer Law Center have a web page devoted to Protecting Against Creditor Seizure of Stimulus Checks.
- Tip: If you can wait for your stimulus payment instead of obtaining a loan, you should. A loan is someone else’s money; the stimulus payment is yours.
BEWARE: Scammers are hard at work trying to steal people’s stimulus money. Beware any text, call, or e-mail purporting to be about your stimulus payment.
BEWARE: Any loan offered in connection with your anticipated stimulus payment, e.g., “Economic Stimulus Anticipation Loan,” is likely a RIPOFF. Please report it to us.
- Contact your creditors and the companies you pay on an automatic, recurring monthly basis to request “coronavirus relief,” such as a temporary hold or freeze of payments. Many creditors have their websites set up for this. If you call, be prepared for potentially long hold times on calls, and you may be asked to explain your hardship.
- If a company is unwilling to grant a crisis-related hold or freeze on an automatic deduction and the deduction is for a non-essential item, you can “revoke authorization” for them to debit your account. The company is legally required to abide by your revocation, but to be extra certain, you can contact your bank as well to inform them that you have revoked the authorization for automatic payments. Bear in mind that you may still owe the company money, and the company could turn the debt over to a debt collector.
- FOR CREDIT CARD HOLDERS: Different banks are offering their credit card customers different types of help. The American Bankers Association has a comprehensive list of the coronavirus relief that banks are providing.
- FOR HOMEOWNERS: The CARES Act may help you temporarily stop your mortgage payments. This is also known as a “forbearance.” If you need this relief, check your mortgage servicer’s website (your servicer is the company to whom you send your mortgage payment).They may have it set up so you can request coronavirus relief online. If not, you will have to call.
- Tip: Enroll in a mortgage forbearance only if absolutely necessary. Interest accrues during the forbearance, and you will have to work with your servicer to determine how to make up for the missed payments. The Consumer Financial Protection Bureau has a short and helpful video about mortgage forbearance.
- If you cannot afford to pay for essentials, consider seeking assistance from friends or family. If ever there was a time to ask for help, now is it. Likewise, if you are financially secure, reach out to friends or family who may be experiencing hardship. Apart from giving them cash, you can help cover the cash crunch in other ways, such as by buying groceries and dropping it off at their home.
When seeking a loan
If the above methods don’t stave off your need for immediate cash, spend some time learning about low-cost loans.
Avoid any product that charges more than 36% APR.
- Check to see what your bank offers. If you have a bank account or an account with a credit union, visit their website to find out whether they offer emergency loans or loans specifically tailored to folks in a financial crisis due to COVID-19. As mentioned above, this site has a list of banks providing crisis relief.
- Consider a loan from a Community Development Financial Institution (CDFI). Find out about crisis-related loans offered by CDFIs. CDFIs make loans and investments to promote community development.
- Capital Good Fund is a non-profit CDFI. It offers a crisis loan that charges 5% APR. It requires no payments and charges no interest for the first three months of the loan.
- Self-held Credit Union offers two personal loan options for members of the credit union. Not a member? No problem. Becoming a member is easy.
- Oportun is another CDFI that offers personal loans.
- Cash Advances from Credit Cards Can be Easy but Expensive. You may be eligible for a cash advance from your credit card. Check the credit card’s website and/or contact the credit card company to find out about available options. A credit card cash advance may have a high APR but the interest rate is substantially lower than a payday or auto title loan.
- Exercise Caution with Online Lenders. Some nonbank, online lenders have better rates and terms than most storefront lenders. The lenders that are part of the Marketplace Lending Association adhere to responsible lending standards that include charging at or below 36% APR. Nerd Wallet has a function that allows consumers to compare loan products.
- If you have an especially good or bad experience with a financial institutions, e-mail firstname.lastname@example.org.
- If you come across a good resource that is not listed here or have any feedback about the information provided here, let us know.
- This is a constantly evolving situation. Sharing knowledge will help us protect our families, communities, and country.
From all of us at Woodstock, Be Well.