Although payday loans are illegal in New York State (as well as 14 other U.S. states), Internet lenders are preying on those in the New York City area with “too good to be true” offers. The offers may sound attractive, but once you get caught in these payday loan cycles, it’s very difficult to break free.
About Payday Loans
Payday loans are loans that make short-term money available to consumers in exchange for a post-dated check (or authorization) drawn on the customer’s bank account. Most payday loans are for periods of 30 days or less. The problem with these types of loans–and the reason they have been banned in so many states–is the exorbitant interest rates associated with them.
It’s not unusual for these types of loans to carry an interest rate of up to 500 percent. This, of course, makes it difficult for the person who is already financially strapped to pay back the loan and forces them to take out another loan, creating a terrible cycle of debt. (As a comparison, New York State caps loan interest rates at 25 percent.)
Types of Payday Loan Scams
Since payday loans are banned in New York State, you won’t find these kinds of loans at the local check-cashing store anymore. However, that doesn’t mean they’ve disappeared. You have only to look in your spam filter to see daily offers of easy-to-get loans from companies based in countries with lax financial regulations, such as Belize or Malta.
According to the New York Times, these off-shore loan companies are assisted by major U.S. banks, like JP Morgan Chase and Bank of America, who allow them to process withdrawals from your American bank account. Some of these loans have clauses in the fine print that make them automatically renewable and thus difficult to get rid of, even when a customer wants to pay back the loan in full.
The Department of Financial Services for the State of New York offers advice on recognizing and avoiding predatory loans, such as payday loan scams.
What To Do If You Can’t Pay Your Payday Loan
If you find yourself caught up in this cycle of payday loans, you’re not alone. More than 12 million people take out one of these loans each year, according to “Business Insider.” And, more than half of those borrowers take out six or more such loans each year.
Consumers should be aware that’s it’s not illegal to default on a payday loan as it is if you default on a traditional loan, like a mortgage loan. However, that doesn’t mean that the payday lender will leave you alone and not try scare tactics to collect their money. Often they will. Sometimes, too, the person calling to collect is not even the lender, but someone who has obtained your loan information from public records.
Payday loans can be scary. If you’re struggling to pay your bills, bankruptcy might be the right answer for you and your family. New York State bankruptcy filings and procedures are complicated; it’s best to work with an experienced attorney who specializes in bankruptcy law. To see if bankruptcy is the right course of action for you, contact the Law Office of Stephen B. Kass P.C. at 212 843-0050 to set up an appointment.