The following issues are by no means a definitive list, but many aspects of the following products have predatory features. Click on each to find out the main aspects of each product and the issues surrounding it.Payday loans/Internet Payday loans
Small dollar, short term loans – repaid to the lender according to the borrower’s pay cycle.
Quick Summary of 2008 legislative changes and main provisions:
- One Loan at a Time
- The loan term is two times the borrower’s pay period.
- Loan Cost – Still high
- 36% APR + 20% interest fee + $5
- So If you borrowed $300, you would pay back $300 borrowed plus $74 in interest and other fees if you are paid every two weeks.
- Extended payment plans once per year; Extended Term Loans on 5th consecutive loan
- 24 hour waiting period between loans
- A database set up to help enforcement
- Harassment of borrowers is not allowed
- Internet loans are illegal and unenforceable! Learn more about internet payday loans.
Small dollar loans set up as a “Line of Credit” similar to a credit card, but all the credit is given out upfront. There is no set ending date for the loan.
- A loophole in the Virginia Code used by former payday lenders to continue to operate without restrictions
- Lines of credit offered up to $750 (generally, but online can be more)
- Interest rates range between 250% and 360% APR
- Completely unregulated by state law
- Collection abuse is widespread
- Many require electronic access to the borrower’s bank account
- Negatively reporting to credit bureaus/garnishments
- Cashnet announced in October they are now offering these loans to Virginia Residents over the internet.
Short-term loan where the security for the loan is the title to a vehicle owned out-right by the borrower. Also called a Motor Vehicle Equity Line of Credit.
Interest caps as follows:
- a. 22% per month (264% APR) for that portion of the loan under $700
- b. 18% per month (216% APR) for that portion of the loan between $700 and $1400
- c. 15% per month (180% APR) for that portion of the loan over $1400
- Loan must be closed-end, meaning it must have and end date. Minimum loan term of 120 days (4 months) and a maximum loan term of one year.
- If the borrower doesn’t pay the loan (defaults on the loan, even by one day*), VEHICLES CAN BE REPOSSESSED! It is the only remedy for the lender when the loan isn’t paid. Lenders can’t file suit for a judgment.
- Repayment must be in substantially equal monthly installments of principal and interest. Some companies interpret this differently. Read the contracts closely.
- The car used as collateral must be paid off (lien-free)
- Loan can only be 50% of the wholesale value of the vehicle
*The law provides for notice before repossession, but some car title lenders are choosing to ignore this part of the law.
Fee-based Overdraft protection*
A written agreement that offers the account holder protection against costly extra fees accessed when withdrawals exceed the available balance
- Insufficient funds
- NSF (non-sufficient fund) fee
- As bad as a Payday Loan
- Banks are now offering Payday Advance Loans
- Wells Fargo
- Only Helpful When tied to a savings or line of credit account, without transaction fees!
Refund anticipation loans
High-fee/cost Prepaid Debit Cards