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Payday loans landing people in jail

Published : Friday, 21 February, 2020 at 4:51 PM  Count : 182

Payday loans give employees a way to get some quick cash. What may surprise many borrowers: Falling behind on repaying those loans can lend them in court-and even in prison.

The issue is a clause in the payday loan agreement, as well as stimulating the US legal system. More than 99% of storefront payday lenders have a small claim on their contract encouraged, meaning that instead of focusing on arbitration in non-credit debt, they can take the case to a small-claim court.

Payday loans landing people in jail

Payday loans landing people in jail

If the applicant fails to appear in court, they can be arrested for contempt of court. A new study by the Consumer Federation of America (CFA) found that payroll lenders are increasingly relying on this strategy, and that is exactly what is happening.

The CFA analysis found that Utah has lender-friendly laws, with nearly two-thirds of small-claim payers related to pay-lenders and other high-rate lenders, the CFA analysis showed.

“This study provides a worrying example of a debt-to-prison pipeline,” Christopher Peterson, CFA’s director of financial services, said in a statement, “Some payday lenders are using insolvent clients to earn triple-digit interest rates using the criminal justice system.”

Typical payday loans for payday loans that land a borrower in court, the study found: $ 994. And given the high interest rates on payday loans and so-called auto title loans, which are protected by a borrower's car, it is not surprising that borrow borrowers fall behind. These loan rates are about 400%, which equates to about $ 15 for every $ 100 per loan; some lenders charge more than 1000%.

In Utah, the system is thought to benefit pay-lenders, as bail posted by borrow borrowers is transferred to financial institutions, the report noted. And contrary to the goal of small-court courts delivering speedy legal decisions, some lawsuits may go on for years, the Consumer Advocacy Group reported.

The CFA said in its report that the system is reminiscent of “Dickensian” debtors’ prisons.-Internet


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