Regulators at the Consumer Financial Protection Bureau have announced that they are investigating the practices of payday lenders, which are banks and other organizations that make loans to individuals using a post-dated check as collateral to advance a paycheck. The loans are associated with high fees and interest rates.
These types of loans are familiar to Memphis residents who find themselves with mounting bills between pay periods. The high interest rates and heavy late fees make the loans expensive ways to get cash advances, often eating up later paychecks and causing the same problems over and over again. However, as many people who have had to rely on a payday loan know, sometimes one is left with few alternatives.
While the Consumer Financial Protection Bureau does not seem to be looking into banning payday loans entirely, perhaps because of the recognized necessity of this type of loan, regulators are considering ways to make the process a little fairer. A spokesperson for the CFPB said that payday loans can turn into debt traps and that they are doing a careful analysis to find ways to help consumers avoid the cycle of debt associated with these loans.
For Tennessee borrowers who find themselves in this cycle, with less cash than they need each pay period and mounting debt, there are other ways to manage loan obligations. When combined with other financial obligations such as car loans or credit card bills, it can be incredibly difficult to get out of debt simple through prudent budgeting and extra work. Bankruptcy is one option available to people with mounting debt that has overcome their income and their available assets.
Source: Bloomberg News, “Payday loans get consumer bureau scrutiny as ‘debt traps'” Carter Dougherty, Feb. 28, 2013.
More information about debt management can be found on our Tennessee bankruptcy site.