How Detrimental Are Arizona Payday Lenders?

arizona payday lendersWe know that everyone’s financial situation is different. People end up in debt for various reasons and it is not always because of a person’s poor financial decisions. Often, there are economic factors out of a person’s control that add to their debt and keep them from climbing out without help.

Today, we want to talk about a controversial loan system in America – payday lending services.

There has been debate over the years about payday lending practices and the government has even taken steps to regulate them. However, payday lenders just received a lifeline that may allow them to continue to operate unchanged.

What Is A Payday Lender?

Most people have seen payday lending services, though they tend to set up in lower income areas. These companies focus on short-term lending to consumers and they do not usually require a credit check. All a person usually needs to take out a loan is proof of income in the form of a pay stub.

These short-term loans are typically for smaller amounts, often less than $1,000. However, they have an average interest rate of 400%.

Yes, you read that correctly. The average interest rate on payday loans is 400%, an amount well beyond what people usually pay for traditional loans for things like mortgages, vehicles, credit cards, and business loans.

How Can This Be Harmful?

The attraction people have to these loans is understandable. For people with lower credit who are unable to receive a traditional loan from a bank, they can simply walk into the store, show proof of income, and walk out with the money they need.

Most people do not think anything about the interest rate because they are sure they will be able to pay off the loan with their next paycheck. Unfortunately, many times people are not able to pay off the loans completely and get stuck in a cycle of borrowing yet again. This often leads to people filing for bankruptcy.

The Regulations

When Congress created the Consumer Financial Protection Bureau, tasked with protecting Americans from predatory loans, they expected change. They gave the CFPB the power to stop “any unfair, deceptive, or abusive” financial services. It took a while for them to come up with a plan, but in 2017, the CFPB said that lenders needed to verify that all loan applicants had the ability to repay the loan before making the loan. They gave lenders until August of 2019 to get ready for the changes.

Many payday lending services closed up shop because they knew that this new, seemingly reasonable requirement, would put them out of business. After all, any other loan service uses this common-sense approach to lending. Payday lenders, though, are most profitable when their borrowers barely pay enough to cover the interest accrued each week and never pay down their principal balance, hence the never-ending cycle.

Early in March, after months of lobbying efforts on the part of payday lending companies, the CFPB announced that they would not require the new changes. Essentially, nothing has changed.

What You Can Do Now

If you are in debt that seems insurmountable, you may have thought about filing for bankruptcy. You should speak with both a financial planner as well as an Arizona bankruptcy attorney before you decide what to do. Whether you have lost a job, suffered a medical emergency, or gone through some other major financial setback, we know it can be difficult to find a path forward. You may have a mountain of debt, from mortgages and car loans to credit cards or payday loans. Bankruptcy protection may be a viable path forward.

Click here for information on Arizona bankruptcy residency requirements.