Payday lending Services should be banned

Introduction: Payday loans should be banned because they prey on the needy and vulnerable who usually remain unaware that they will end up paying a huge amount back. They contribute nothing to society besides pushing people into crippling debt and lining the pockets of the unethical people who run the companies. 1.Introduction to the problem of pay day loans. Payday loans are small, short-term loans that are easily obtained because the lender rarely checks the borrower"s credit. Simply write a post-dated check for the amount borrowed or hand over your bank account information plus a sizable fee, typically $15 per $100 borrowed, and you walk away with a few hundred dollars. When the loan comes due, generally in two weeks, you pay the money back. Or the debt can be rolled over, delaying repayment in exchange for more fees. Here"s the problem: The hefty charges imposed by lenders make the effective interest rate exorbitant. A $15 fee to borrow $100 may look like 15% interest, for example, but it"s really equivalent to a 390% annual rate " more than 10 times the typical rate for a credit card cash advance, itself an expensive option. According to a Pew Charitable Trusts study in 2012, the average payday loan borrower took out eight loans of $375 each per year and paid a whopping $520 in interest. https://www.nerdwallet.com... 1.Questionable practices of payday lending, "Tuesday, 17 March 2015 skynews.com ASIC has investigated 13 leading payday lenders and found some engaged in questionable lending practices. "Same article shows that included issuing possibly unsuitable loans and setting longer-than-requested loan terms to maximize interest payments. (loans you can"t pay back) "According to the Consumers Union (the nonprofit publisher of Consumer Reports) in California, Payday Loan companies can charge as much as 15% of the face value of the check. That equates to about 900% for a one-week loan and 450% for a two-week loan. To compound the issues, a Wall Street analyst indicated, "the average customer makes 11 transactions a year," compounding their problem and their financial woes. 2.Cycle of debt "According to the Consumer Financial Protection Bureau, which is now receiving comments on its proposed new rules, people end up extending the initial short term loans for much longer periods, and paying extra fees and high interest rates over long periods of time. Many times the consumers can't ever get out of that initial debt, bureau officials say. "The only way payday lenders make good profit is by imposing high interest rates in order to leave the consumer in a cycle of debt in which a person spends the rest of his life attempting to pay back. 3.Explanation of this "cycle of debt" "More than 60% of payday loans are made to borrowers who take out at least seven loans in a row -- the typical point at which the fees they pay exceed the original loan amount, according to a study of more than 12 million loans made over 12-month periods during 2011 and 2012 by the Consumer Financial Protection Bureau. "The problem is that borrowers often can't afford to pay off the first loan, forcing them to roll over their debt and even take out a new, sometimes larger loan so they can pay off the original debt. The CFPB found that more than 80% of all payday loans are rolled over or renewed within two weeks. "Many payday borrowers live on fixed monthly incomes, such as retirees or disabled Americans receiving Social Security disability benefits. Of those payday borrowers receiving monthly payments, the study found that one out of five borrowed money every single month of the year. http://money.cnn.com... Now some alternatives to this method of pay day lending 1. Faith based organizations provide an alternative "The Washington Post shows that such programs offer very low interest rates near zero in order to achieve the goal of helping the people in need of loans. The biggest difference is that those programs make people financially stable rather than stack up their debt. "The Jubilee Assistance Fund has helped parishioners of the United Methodist Church secure 14 loans that ranged from $500 to $8,800, according to Carol Mathis, CEO of the Virginia United Methodist Credit Union. Churches offer funds as collateral so that borrowers can qualify for a loan through the credit union. One couple used the fund to take out a loan of about $3,000 at an annual interest rate of about 6 percent and repaid the advance in about a year, earlier than promised. 2. Installment loans "Traditional installment loans are the best alternative to payday loans for consumers because they provide consumers a clear roadmap out of debt through manageable equal monthly payments that pay off both principal and interest," says Karen Klugh, a spokeswoman for the American Financial Services Association, an industry group. She says consumer finance companies determine the borrower"s ability to pay and report the debt repayment to the major credit-rating companies, which can help the borrower build a good credit score. Installment loans also give you much more time to pay back the debt, says James Chilton, founder and chief executive of the Society for Financial Awareness, a nonprofit group focused on financial literacy. This financing also generally lets you borrow more and at significantly lower rates than payday loans. https://www.nerdwallet.com... 3. Online alternatives Online alternatives: Many websites offer less expensive borrowing options. There"s LendUp, which provides lower-cost installment loans, and Activehours, which pays hourly wage earners the same day they work. There are also peer-to-peer lending websites such as Prosper and LendingClub, which Turner says offer better choices compared with payday loans.https://www.nerdwallet.com... Conclusion: Any alternative is better to pay day lending. It's even better to borrw from a friend then from payday lending. 4. This practice is morally wrong Basicully this method doesn't just hurt economically but it's morally wrong and as I stated in my intro a lot of the pay day lenders are greedy. Many payday borrowers live on fixed monthly incomes, such as retirees or disabled Americans receiving Social Security disability benefits. Of those payday borrowers receiving monthly payments, the study found that one out of five borrowed money every single month of the year. "These kinds of stories are heartbreaking and they are happening all across the country," Cordray said in a prepared statement. "They demand that we pay serious attention to the human consequences of the payday loan market." http://money.cnn.com... This quote says it all. A lot of people who actually us pay day lending are super desperate or poor. The reason not a lot of people really know about pay day lending it seems is because this process is only utilized by the desperate or people who don't know better. This practice is morally wrong and the individuals behind it have bad morals.