debt

Caught in a cycle of payday loans

Steve BucciQuestionDear Debt Adviser,
I have several payday loans that I am not able to pay off and I have to keep rolling them over. Do you know what I can do to settle or get a payment plan with payday loan companies? Also, I received a call from a firm about a debt they say I owe. I asked them to send me a copy of the debt so I can make sure I owe it. They said I need to give them my debit card number so they can debit $300 from my account. Please advise.
-- Lora

AnswerDear Lora,
Bacon, bacon, give me the bacon! Collectors have only one thing on their minds and that is getting the bacon, which in this case is a payment from you. That's why there is a leash law called the Fair Debt Collection Practices Act on the books.

Under no circumstances should you give the collection firm calling you about a debt your debit card number. You did the right thing by requesting verification of the debt. In fact, the Fair Debt Collection Practices Act requires that within five days of first contacting a person about a debt or during the initial communication a collector provide in writing the following items:

  • The total amount of the debt.
  • The name of the creditor owed the debt.
  • A statement that you have 30 days after the initial contact to dispute the validity of the debt or it will be assumed the debt is valid.
  • A statement that if you notify the collector within the 30-day period that you dispute the debt, the collector must provide you with verification of the debt by mail.
  • A statement that you may request in writing within the 30-day period the name and address of the original creditor.

In addition, if you dispute the debt within 30 days of contact, the collector cannot legally continue collection efforts until verification of the debt has been provided. From what you have described of the conversation with the collector, you did not receive any of the above information. Should they call again, tell them clearly that you are disputing the debt and that you understand your rights under the Fair Debt Collection Practices Act and do not wish to be contacted again until you receive verification of the debt.

As for the payday lenders, your rights and their responsibilities vary by state. State laws are woefully inadequate in this field and often allow any and all interest rates. Those with limits tend to allow annual percentage rates of 400 percent to 500 percent. There may be some help coming down the road under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Rules and guidelines may come from the Consumer Financial Protection Agency once it has begun to function, but for now, the practices of payday lenders will remain under the governance of state laws.

If your debt is with a lender who is a member of the CFSA, or Community Financial Services Association of America, a group of payday lenders who subscribe to a code of conduct, you can request an extended payment plan. The plan will allow you to extend your loan for four payday cycles without any additional fees or charges. Many other payday lenders do not offer a payment plan. Their idea of a payment plan is a loan rollover until you collapse under the weight of fees and cumulative interest charges.

My recommendation to break the payday loan cycle is to determine if you can borrow the total amount you need to pay the lenders from another source. Even a cash advance from a credit card or an overdraft line of credit would be better than continuing to pay the exorbitant fees to roll over your loans each month. Because you signed the agreement with the lender that allows the fees to be added to your balance owed, the balances will continue to grow very quickly without full repayment.

If you have no other alternative to come up with the money needed to satisfy the payday loans, you might use an attorney to attempt to reach a settlement. I consider this a long shot and you should ask the attorney about its pros and cons in your case.

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