Anyone can find himself or herself running short on cash from time to time.
In years past, the way to deal with such a cash flow problem would have been to buckle down and reorganize the budget so that all essentials were covered, or in the most extreme cases many people could turn to family or friends for the money they needed to get by.
Now the trend seems to be to just borrow the needed cash from a payday lender.
These lenders advance money to anyone in a bind, but charge outrageous interest rates on the loans.
The payday lending companies have become more visible in recent years with television and radio advertising that was not previously seen, and plenty of new lending centers are popping up all the time - especially in low-income areas.
For people who are in desperate situations and can find no other way to get the money that they need to get by, payday lenders seem to be an easy way to solve the problem. However, while walking in and out of a payday lender may be an easy way to pick up cash in the short term, there can be crushing financial circumstances in the long term as a result of these high interest loans.
A recent article by Jennifer Brown of the Denver Post highlights the case of one woman who was nearly eaten alive financially by a payday lender. Linda Medlock borrowed $500 to make a mortgage payment on her home. Four years and $8,000 later, she finally has that debt paid off.
Medlock's story is not unusual. Many Americans are getting deeper and deeper in debt by taking out emergency cash loans with payday lenders. These small loans carry huge interest rates, yet the rate of people taking out these loans is rising all the time.
People who are in financial crisis and perhaps trying to avoid filing bankruptcy or losing their homes to foreclosure are flocking to payday lenders in an attempt to solve their problems. As Medlock's story illustrates, payday loans cause many more financial problems than they solve.
In Colorado, the average annual interest rate for payday loans is 350 percent. The loans are not meant to be long term, however in many cases the financial burden can carry on for months, or even years, while the interest continues to rack up and cause serious financial problems for borrowers.
Lawmakers in Colorado now feel that it is time to step in and impose stricter regulations on payday lenders.
A bill has been proposed that would cap the interest rate that payday lenders can charge at 36 percent.
This payday lending reform act seeks to crack down on predatory lending practices and would also prohibit payday lenders from loaning more money to consumers who already have unpaid loans.
To prevent consumers who may already be on the brink of filing bankruptcy from going further into debt, the bill would have lenders check a database to see if a consumer already has payday loans. If the consumer already owes money on a payday loan, the lender would be barred from lending them any more money until the debt is paid.
The Denver Post reports that a trade association in Colorado has said that the payday lending act could put many of the lenders out of business as it amounts to a ban on the business of short-term lending.
For people like Medlock who have been caught up in the high interest payday lending scheme, that sounds like a good start.
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