Predatory Lenders And The Lenders

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Predatory lenders prey on consumers that are in a position so desperate that bargaining for a better deal becomes impossible. Lenders tend to set up in low income areas where education is low and desperation runs high. They can then use their position to impose astronomical origination fees and interest rates on the consumer. State and Federal governments have created laws to limit these practices; which focus on fees, interest and the method by which the loans were formed. Even though consumers are protected in the subprime loan market, the loans are still giving the lender more advantages than a prime market loan. The following will be focusing on the most notorious of predatory loans, the payday loan. First payday loans will be defined,…show more content…
The loans are marketed in low income areas where it is likely that the borrower is of the working poor class. These borrowers have run out of money and can’t cover their expenses with their current paycheck. They go to a neighborhood check cashing store and apply for a payday loan to cover them for the week Often when the loan is due they can’t afford to repay the balance and are hit by rapidly accruing interest. Most borrowers end up “rolling up” their current loan into a new loan as they spiral deeper and deeper into debt. This scenario plays out over and over and it is simply irresponsible lending by its very nature. The lenders are not acting dutifully by ensuring that the lender has the means to repay the loan. So as the fees mount up the debtor ends up making payments which don’t even touch their principle balance. This cycle continues until inevitable point of default.
After default
At this point the debtor has defaulted, and the lender has collected various fees and accrued even more fees because now the loan is in default. The lender will add as many fees as they can to raise the amount owed, because now it is time to sell the balance to a collections agency. Collections agencies purchase these defaulted accounts for a percentage of their balance. The sale price of these accounts depends upon their age, the fresher the debt, the more costly. Generally debt that is less than 3 years old is sold at 7.9
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