A Marketplace Tip from Your BBB Denver/Boulder
Ads for payday loans and check-cashing services bombard us on the radio, television, the Internet, and even in the mail. While providing an immediate solution to a financial problem, payday loans and check-cashing come at a very high price to uninformed consumers, often plunging the consumer into even more financial difficulty.
Check cashers, finance companies, and others offer small, short-term, high-rate loans that come packaged under a variety of names such as payday loans, cash advance loans, post-dated check loans, check advance loans, or deferred deposit check loans. Often the buyers of these products do not have a bank account where checks can be cashed or payroll checks deposited for no or low cost.
For check-cashing services, a buyer provides a personal check payable to the service for the amount he or she wishes to borrow--plus a sizeable fee. The company gives the borrower the amount of the check minus the fee. Fees charged for payday loans are usually a percentage of the face value of the cash advance.
With payroll checks, buyers can receive cash—but the amount they receive is significantly less than they have earned.
Consumer groups argue that payday loans and check-cashing services are an extremely bad deal because they carry high fees that, when annualized, amount to triple digit interest rates. In the case of payday loans, if borrowers cannot repay their balance, they are given extensions – for additional fees, of course. If they choose to take these extensions, the consumer is charged even higher rates of interest that further pushes them into a downward spiral of long-term debt.
The good news is that there are other options available to the consumer. Consider these possibilities before choosing a payday loan:
- When you need credit, shop carefully. Even if you only need funds for a short time, you must still consider the Annual Percentage Rate (APR).
- If you are employed and have a matricula de consulado or voting registration card from your country of origin, consider obtaining a checking account. You will save significantly on fees on payday.
- Compare the APR and the finance charge of credit offers in order to insure that you receive the lowest cost.
- Ask your creditors for more time to pay your bills. Find out what they will charge for that service – whether it’s a late charge, an additional finance charge, or a higher interest rate.
- Make a realistic budget and stick to it, avoiding unnecessary purchases. Even daily expenditures add up over time. Attempt to build some savings to act as a buffer in the event of financial emergencies.
- If you need help working out a debt repayment plan with creditors, or help developing a budget, contact a local consumer credit counseling service. There are non-profit groups in every state that offer guidance.
- Always take the time to check the your local BBB when researching any entity prior to doing business. Call the BBB Denver/Boulder at 303-758-2100, or go to www.bbb.org.
If you believe you have been violated by a lender, file a complaint with the BBB and with the Federal Trade Commission (FTC) by calling 1-877-FTC-HELP. Although the FTC cannot resolve problems for consumers, it can act against a company if it sees a pattern of possible law violations. For more information, visit the FTC online at www.ftc.gov and click on the Consumer Protection link.
