Commentary, News

Predatory payday lenders hit a new low

They’ll probably outdo themselves again soon. Heck, as you read this, you can bet the owners of some bottom-feeding, high interest loan company in eastern North Carolina are having a meeting in which they’re discussing how to market their “product” to hurricane victims.

That said, this story from recent edition of Education Week describes a scam that will be difficult to top. It reports that the payday lending industry — those fun people who make two week loans to their struggling fellow citizens at 200, 300 or 400% interest — are now pushing their rip-off on parents of kids heading back to school.

An Education Week analysis found dozens of posts on Facebook and Twitter targeting parents who might need a “back to school” loan. Some of these loans—which are personal loans and can be used for anything, not just school supplies—are considered predatory, experts say, with sky-high rates and hidden fees….

“Back to school expenses have you stressing?” one Facebook ad for the Tennessee-based company Advance Financial 24/7 read. “We can help.”

Clicking on the link in the ad brings people to an application page for flex loans, an open line of credit that allows borrowers to withdraw as much cash as they need up to their credit limit, and repay the loan at their own pace. But it’s an expensive line of credit—Advance Financial charges an annual percentage rate of 279.5 percent.

Another advertised solution to back-to-school expenses: payday loans, which are cash advances meant to be paid back on the borrower’s next payday. The loan servicer Lending Bear, which has branches in Alabama, Florida, Georgia, and South Carolina, posted on Facebook that payday loans can be an answer to “your child need[ing] school supplies.”

The article reports that industry representatives are mouthing the usual boilerplate platitudes about the loans being only for emergencies — blah, blah blah. But, of course, the truth is that the whole profitability of the “industry” is premised upon borrowers coming back (like cigarette smokers) over and over once they get hooked. This is from the Ed Week article:

“Each one [of these ads] just seemed like they were really taking advantage of susceptible people,” said C.J. Skender, a clinical professor of accounting at the University of North Carolina at Chapel Hill’s business school who reviewed some of the back-to-school ads at the request of Education Week.

“Outrageous” interest rates in the triple digits make it exceedingly difficult for borrowers to get out of debt, he said.

Click here to read the entire article.

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