By John Clark
When we were kids, we were taught about what we'd do as grown-ups: get a job, get paid, pay the bills, keep working. Lather, rinse, repeat. Now that the black-and-white, right-and-wrong days of elementary school are over, though, we know the working world can be more complicated than that.
Sometimes there isn't enough money to pay the bills when they're due. Sometimes you have to file for bankruptcy or take out loans. And sometimes, those loans end up biting you in the behind.
Payday lenders, also known as cash advance lenders, provide quick, small-scale loans without background checks. They charge fees for taking out loans (usually $15 for every $100 lent) which compute to high interest rates (more than 300% annually) and require repayment within two weeks. In Charlottesville, Virginia, town councilors have decided this is unacceptable.
Three payday lenders are operating currently in Charlottesville, and, if the councilors decide to take official action, according to the Daily Progress, there won't be any new ones opening. So what about these lenders is so dangerous?
Apparently, for borrowers who need the loans to pay bills when money is tight between paychecks, the repayment deadline is not always feasible. The Daily Progress reports that, often, when a borrower cannot repay one loan, he is forced to take out another, from another company. This creates what authorities are calling a "cycle of debt" or a debt "trap," and leave borrowers with little choice but to file bankruptcy.
Those who work for the payday lending companies have allegedly claimed that the lenders provide a necessary service for those who need to pay their bills. The bills-and bill collectors-won't go away even if the lenders do.
But city councilors are reportedly concerned about the rates these companies can charge, and are considering legislation that will cap the yearly interest rate at 36%, down from the more than 300% being charged now. In fact, several bills proposing just that failed to pass through the legislature this year.
North Carolina and West Virginia, states that border Virginia, have already banned payday lenders. Though councilors in Charlottesville cannot restrict the current payday lenders in any way, they have the power to change zoning regulations (as has been recently done in Norfolk) or require special permits to prevent new lenders from opening.
Additionally, the councilors are supposedly looking for ways to educate potential borrowers about the tactics used by predatory lenders such as these.
There is a concern-voiced by supporters of the industry-that restricting the opening of new payday lending companies would only serve to eliminate competition for the current lenders, effectively creating an oligopoly. But others argue that more lenders would just mean more ways of getting into debt.
Whether or not these lenders ultimately help borrowers in a pinch, it's important to be aware of exactly how much "payday advances" can end up costing. Before taking out any loan, you should learn all its details and terms of payment. Otherwise, you may find yourself with a pain in the check.<