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Bill-collector Confidential

Payday Loans

Is your payday loan really enforcable?

The relaxation of usury laws has let a new brand of loan-shark into the neighborhood, one whom no self-respecting debtsman would have anything to do with, the payday lender. The payday loan is a personal-finance product aimed at a growing sub-sub-prime, credit-card-less market. Payday debtors, even more than credit-card debtors, are likely to let themselves fall into a compounding cycle of soaring balances.
    The routine two-week loan ranges from $100 to $1000 and can levy an interest rate of 400 percent. The typical dollar limit set by a state is $1000. That is, if payday lending is allowed at all. State and local prohibitions are expanding with payday's notoriety. State interest-rate caps are being reinstated, thanks to the gross usury of payday lending. For military personnel, a federal law has limited payday interest to 36 percent, and this rate is low enough to discourage lending to that class.
    The payday lender requires no passing grade on the FICO score of the payday borrower, who must have only a job and a bank account. The borrower's "collateral" is his signed, post-dated check. He can also arrange for his bank account to be tapped electronically. The assumption is that he will cover the check next payday. It's a check-kiting-cum-loan-sharking scheme, and it's even on the internet.
    The interest is exorbitant, because (debtsmen take note) a delinquent debt is almost uncollectable. The lender's collection leverage is in the overdraft fees that your bank will levy on your checking account when your check bounces, but the lender gets repercussions from his own bank, too, if he deposits lots of bad checks.
    With incomparable quickness, this short-term industry flips you to outside collection. The agent will be a payday specialist who takes up to 50 percent, because nobody else wants these accounts. This collector's favorite weapon is repeated harassing phone calls, and he likes to threaten you with criminal charges. Payday collectors spin the lie that the bouncing of your post-dated check is a criminal offense, but it is not. The collector will claim that an "investigation" is underway, that a warrant is already out on you, that you must pay up within two hours or the cops will be at your door to make an arrest. No shame.

    A criminal collection operation based in India has hacked into the databases of some internet payday-loan companies and ripped off the names of debtors. Steve got the 800 number and called one of these off-shore agents, acting as if he had been called by them. The collector (with Indian accent and sitar music audible in the background) instantly invented for Steve a phony case number and a specific dollar amount of debt. He then declared that the police would be at the door within two hours.
    "It might take a bit longer, Steve teased, "there are two donut shops between my house and the police station." The collector didn't get the USA idiom.
On the phone then came an “Inspector Smith.” Steve asked, "Is that the Calcutta Smiths or the Mumbai
Smiths." No answer. The “Inspector” told Steve that their call was being recorded and that a recording of the conversation was being sent to the Attorney General of his state and to county law enforcement. He accused Steve of check fraud, bank fraud, breach of contract, and theft by deception.
    However debtor Steve could take care of the problem out of court if he would buy a pre-paid debit card for $375 and call back. If he failed to do this, the following would ensue: Steve's social security number would be blocked, he could not get credit or even a credit report, he would be fired from his job, he would become ineligible for work for six months,
   Steve also would lose any government benefits, and an arrest warrant was being downloaded to the county sheriff. Steve would need, not one, but two attorneys to defend himself in court, and, if he lost, he would have to report to the local prison for incarceration. However he could avoid all of the above if he sent in the $375 today. In India anything goes; the Fair Debt Collection Practices Act can be ignored.
    But in the USA, the law is on the payday debtor's side. No criminal-law framework supports payday lending. Your rubber check is a civil matter, not criminal, and no DA and no criminal court wants to become a collection agency for a payday lender. The collector is bluffing, as usual. Calmly remind him of the Fair Debt Collection Practices Act and order him, by writing, to stop the phone calls. Also ask for a validation of debt and tell him you are checking to see if he has a license to practice in your jurisdiction. That should send him on to the next victim.

from Bill-Collector Confidential Ch. 2, How Creditors Collect
Copyright   2012
by Steve Katz and George Trinkaus
All rights reserved.


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