Payday Advances: Controversy and Criticism

A borrower’s expenses until his or her next payday is covered by a payday advance or payday loan or paycheck advance which is a small, short-term loan. The loans are also sometimes referred to as cash advances, though that term can also refer to cash provided against a prearranged line of credit such as a credit card.

Payday Advances: How it works
A payday lending store is visited by the borrowers and a small cash loan is secured, with payment due in full at the borrower’s next paycheck (usually a two week term). Transactions are associated with finance charges. A postdated check of the full amount of the loan plus fees is written to the lender by the borrower. Returning to the store and repaying the loan in person are expected by the lender on the maturity day. Money will be withdrawn traditionally or electronically by the lender, if the borrower doesn’t repay the loan in person.

Payday Advances: Controversy and Criticism
Public perception is challenged world over by the controversial practice and subject to legal hassles system of payday advances.

Money Drainer from low income sectors: Payday lending are resorted by people who are typically low-income group with few assets, and who are unable to secure lower-interest-rate forms of credit. Payday lending operations charge very high interest-rates, and do nothing to encourage savings or asset accumulation; contributing to the depletion of assets of low-income communities.

Exploitation for profit: The young and the poor are targeted by the lenders, the high interest rates which are likely to trap them in a “debt-cycle,” is not understood by borrowers, who then have to repeatedly renew the loan and pay associated fees every two weeks until they can finally save enough to pay off the principal and get out of debt. Critics also say that payday lending unfairly disadvantages the poor, compared to the middle class who pay at most 25% or so on their credit cards.

Aggressive advertising practices: Adverts are placed in social networking sites like ‘Facebook’ by payday advance lenders, which is against advertising regulations.

Aggressive collection practices: in many cases, the borrower has written a post-dated check to the lender; if the borrower defaults, then this check will bounce. Some payday lenders have therefore threatened delinquent borrowers with criminal prosecution, for check fraud.

Ignoring Legal Restrictions: Usury limits are known to be ignored by payday advance lenders. And charge higher amounts than they are entitled to by law.

Net profitability: Critics concede that some borrowers may default on the loans, but point to the industry’s pace of growth as an indication of its profitability. Regardless of its profitability the practice is condemned by the consumers because it “takes advantage of consumers who are already hard-pressed to pay their debts”.

Nowadays payday advances have become extremely popular. A payday loan to get you the extra money you need is offered by the lender every time you turn up. Before taking out a loan you should consider whether payday advances are really the best solution, even though how enticing the idea of ready money be. There are several serious factors that are need to be considered by you before taking out a loan which seems like an excellent idea when you are in a tight spot financially.