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Predatory Lenders Continue to Profit From Borrowers

Life is full of surprises, many of which are accompanied by unexpected expenses. When a car breaks down or a plumbing emergency occurs, New Jersey residents may need to rely upon credit cards or cash advances to make ends meet. So-called payday loans offer short-term loans at a high interest rate to consumers who may be unable to secure a credit card or other type of personal loan.

For years payday lenders have justified the high interest rates that accompany their loans, arguing that they provide much-needed funds to borrowers who are considered high risk. In recent years, the questionable practices of some payday lenders have forced state and federal governments to step in and attempt to regulate the industry and cap interest rates. For example, interest rates for loans provided by payday lenders who operate in New Jersey are not allowed to exceed 30 percent.

Despite attempts to regulate the usury lending practices, many continue to find ways to get around regulations. For example one 62-year-old woman, who relied upon payday advances to fund her retirement, recently discovered she was being charged $15 in hidden fees for every $50 she borrowed. This is an interest rate equivalent to 350 percent.

These types of unfair lending practices are not uncommon among payday lenders; borrowers often find themselves trapped in a never-ending pay cycle in which they are never able to pay towards the loan's principle as monthly payments are swallowed up by interest rates and hidden fees. As a result borrowers end up throwing hundreds or thousands of dollars away.

While often billed as providing consumers with financial freedom, credit card and cash advance companies make money off of the interest rates and fees charged to consumers. It's no wonder that some of these companies continue to focus on finding creative ways to work around current regulatory laws and trap consumers in a monthly pay cycle that guarantees profits.

Consumers, who have been taken advantage of by payday lenders or other types of predatory lenders, may be unable to repay their loans. For these individuals, Chapter 7 bankruptcy can effectively wipe out debt associated with unsecured loans as well as other debts that may have caused an individual to rely upon a payday lender in the first place.

Source: The New York Times, "Costly Loans Are Drawing Attention From States," Jessica Silver-Greenberg & Rachel Abrams, March 18, 2014

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