Nathalie Martin at Credit Slips reports that many internet payday loans are illegal and therefore unenforceable. But they can be a big problem, since most automatically deduct their fee from consumers’ bank accounts and roll over without warning.
Since many of these loans are illegal under state payday lending laws, consumers can simply change bank accounts to stop the hemorrhaging. The payday lender should not be able to collect on the illegal payday agreement.
Disclaimer: While many internet payday loans are illegal, some may not be; check your own state laws before doing anything drastic.
If the loan was illegal, the payday lender could sue, but probably only for the amount of the loan plus interest at the normal rate on judgments, which is probably less than 10%. Most consumers in trouble will already have paid off the original loan amount and then some in late fees, rollover fees, and more.
However, consumers who do this could still be stuck with some pretty negative information on their credit reports for seven years. The best course is (obviously) not to take out the payday loans in the first place.
Many Internet Payday Loans are Unenforceable | Credit Slips
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{ 2 comments… read them below or add one }
I agree that payday loans should be avoided in the first place, but I do feel that we all have a responsibility to service the debts and contracts that we enter into. The terms were no surprise when the loan was issued.
Yes, we know what the terms are but when we are in a financial crunch we dont alwasy think about the consequences. I think these companies are taking advantage of people in financial crisis.