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Podcast: How a $1,000 Loan Ballooned into a $40,000 Debt

When Naya Burks was strapped for cash five years ago, she borrowed $1,000 from AmeriCash Loans at an enormously high annual interest rate of 240 percent. It wasn’t long before she defaulted on payments and AmeriCash took the opportunity to sue her – ultimately garnishing more than $5,300 from Burks’ paychecks while the loan continued to grow at the original 240 percent APR into a $40,000 debt.

ProPublica’s Paul Kiel and Steve Engelberg explain that it’s become common business practice for high-cost lenders to sue their customers; some states even charge borrowers the cost of suing them. And even when borrowers pay back their loan several times over, as in Burks’ case, they can still find themselves stuck as debtors for life – what one judge called a sort of “indentured servitude.”

“The idea that not only do you take out a loan that’s incredibly costly but there are cases in these states that I write about [where] that means that loan is always with you; even if you default, they can go to court,” Kiel said. “It’ll continue to grow at the high interest rate that you borrowed at…you’ll never be free of it, even if you’re making payments.”

You can listen to this podcast on iTunes and Stitcher. For more on this investigation, check out Kiel’s report: When Lenders Sue, Quick Cash Can Turn Into a Lifetime of Debt.

Barbara Mahon

Dec. 17, 2013, 1:38 p.m.

What is wrong with us that we allow the dollar to override all values of human decency.  It is all shocking in so many arenas, and even the courts supporting this kind of madness.

Why don’t the laws of usury apply in these cases.  It’s astonishing to me.  What is happening in the contracts that this law can be overridden?  Even if the person agrees to this percentage rate, there are laws against it.

Capitalism creates such sad and unfriendly outcomes unless it is regulated in an apolitical manner. Unfortunately, the regulators and regulations of the past forty years have been unfairly influenced by political donors who have sought ‘deregulation’ under a Libertine philosophy that ‘the free market will take care of it’. The fact is, regulation is needed and consumers clearly need protections from such usurious interest rates.

“Capitalism” has been hijacked and turned into something very different from “American Capitalism” as it once was. Now it’s integrated into the “Best political system that money can buy”. Read “Extortion” by Peter Schweizer.

When I was a kid the government called this “loan sharking,” and the folks who engaged in this activity were locked up and called “mobsters.”
Now? 
Today these croo…er… business folks don’t need the tools of yesterday, like baseball bats, lead pipes, and handguns. Today the government not only condones these practices, but today plays the role of what we used to call “enforcers.”

This is strange. Here in Texas, when you go to court and get a judgment, it’s for the amount of the loan plus accrued interest. After that, the judgment amount accrues interest at 8% annually. But the original loan interest doesn’t apply anymore, since the loan is considered defaulted and has had a judgment entered. So I find this very strange that the original interest rate is being applied even after they went to court and got a judgment!

Why don’t equitable remedies apply?  Why can’t the judge apply legal doctrines like unconcionability to cut off the lender’s ability to enforce the contract’s interest rate?  A 240 percent interest rate and a lifetime of garnished wages are punitive and shouldn’t be enforced, IMHO.

Payday lenders can provide a valuable service: an unsecured short term loan for a small amount, typically less than $1,500. Many low income people benefit from a payday loan. The 240% APR is misleading because on a $1,000 loan, a loan officer has to put in at least a couple of hours of work to examine the borrower and process the paperwork. Taking into account overhead, finance, and expectation of a loan payoff in one year, $240 is not much income for a payday lender.

A lender has to have recourse to pursue remedies in the event of default There should, however, be some type of legal restraint on how much interest a delinquent loan can be allowed to accrue.For example 240% for the 1st year, then prime plus 5% thereafter, plus collection costs. $1000 at 240% compounded for 20 years results in a staggering figure of $56 BILLION.

dr. elliot

Oct. 2, 6:16 p.m.

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