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Payday lenders under scrutiny for lending practices

Many Michigan residents are familiar with the idea of a payday loan, since many have used this type of loan to pay for an unexpected large expense. These loans can be very helpful since they are considerably easier to get than other types of personal loans and they do not require any collateral. And, unlike a credit card, payday loans are still available to those who have a low credit rating. 

However, lenders often take advantage of the difficult situation that borrowers are in and in recent years have been increasing the interest rate on these loans, prompting an investigation by a state attorney general. In some cases interest rates were as high as 650 percent. 

As a result of the investigation and the unfair practices that were uncovered, the attorney general made a settlement agreement with many payday loan companies and companies that buy their debt. This agreement includes fines and penalties as well as a prohibition on collecting $3.2 million in payday loan debt.

Although this particular settlement is unlikely to impact borrowers in Michigan, it is an example of how it is possible to fight back against unfair and predatory lending practices. Lenders sometimes think that borrowers who are in financial distress can be taken advantage of, but the truth is that some lending terms are unfair and should not be enforced. There are a variety of ways that borrowers can get a fresh start through credit counseling or debt consolidation. However, it is important to work only with reputable companies and to seek advice from a trusted advisor before making any new agreements.

Source: Reuters, "N.Y. Attorney General settles with payday loan companies," Sept. 30, 2013. 

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