What Is Payday Loan Fraud ?
| A payday loan is a short-term, cash advance loan provided to borrowers at an exorbitant interest rate. These loans are intended to cover the expenses of the borrower till his/her next payday check, which is usually a two week term. |
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The loan amount in a payday loan is usually small and ranges between $100 and $500. However, the annual percentage rates charged by lenders are in the range of 390 percent to 780 percent.
Payday loans are the most profitable business model for lenders. These loans also provide an opportunity to commit a crime in the most convenient and the legal manner. As a result, payday loans have been termed illegal in several states of the United States.
Till date, many people fail to understand the ways in which a payday loan fraud is committed. Listed below are some important ways of payday loan frauds.
- Payday loans are issued against a post dated check. In return, the borrower gets the cash minus the lender’s fee. At this stage, some lenders commit fraud by asking borrowers to pay a variety of fees that can include an application fee, insurance fee and also a processing fee. The final amount that the borrower gets is less. Ironically, borrower needs to repay the complete loan amount along with the interest.
- The next type of fraud occurs when the borrower is unable to repay the loan amount on the next payday. Many lenders encourage customers to get their loan renewed. The vicious cycle continues till the borrower enters a major financial crisis and is required to surrender his/her assets towards loan repayment.
- The third variety is of bad checks. Laws governing check bounces are really severe in all the states of US. Some payday lenders take advantage of these laws and try to threaten delinquent borrowers against possible criminal prosecution.
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What Is Payday Loan Fraud