Chicago Bankruptcy Lawyer Blog

Sharkie: Yo! It’s the day after payday. I came to collect the $500 I loaned you last week.

Desperate Borrower: Oh, man! I know I just got paid, but I’m still short on cash.

Sharkie: Ya got any preference as to which knee cap I do?

Desperate Borrower: Listen, can I pay you on my next payday, in two weeks instead?

Sharkie: Okay. I guess I can do that. But you got to pay me $125 right now for giving you an extension.

Desperate Borrower: But if I pay you $125 now, I won’t have enough for food for my kids!

Sharkie: That ain’t my problem. You want me to roll-over the loan or what? C’mon, c’mon! I got dozens of other “collections” to make today.

Desperate Borrower: Yeah, yeah, I want the extension. What choice do I have?

“What choice do I have?” While that’s a hypothetical situation, it may hit fairly close to the mark for a lot of people. The only difference is in the threat – it’s a check that’s going to bounce versus a knee cap that’s going to be broken. What a choice. Sadly, for a lot of people who are living paycheck to paycheck, it’s the only choice. Even if you’ve been able to budget well and have been capable of stretching your paycheck and living within your means, without a cushion for an emergency, to whom do you turn if you need an extra $300, $500 or even $1,000?

Many people turn to the payday loan centers that are popping up in all areas of the country, but which seem to dominate in most urban and distressed areas – they’re in the strip malls, and next to the barber shops and beauty parlors, and even in the local 24-hour convenience stores. And, why not? It’s easy money to get – all you need is proof of a job with a steady paycheck, a checking account and a ton of personal information and references. You apply for the unsecured, very short term loan – typically less than a month -- fill out the form, sign on the dotted line and leave a signed, post-dated (to your payday) check for the full loan amount. Then, less than an hour later, you’ll be able to walk out with the money you borrowed. But, not all of the money you borrowed. The payday loan center has already withdrawn their fee, which can be as high as $25 for every $100 borrowed. So if you ask for $100, you get $75; if you need $100 exactly, you’ve got to get a loan for the more than $125.

When your payday comes around, you agree to repay the full loan amount and in return, you will get your check back. Now, you should know that in some states, it’s illegal for you to even write a check on funds you don’t have. It’s called fraud. While the principle behind a payday loan centers is entirely predatory (in my opinion), the loan centers that can be considered unscrupulous bottom-feeders will think nothing of depositing your check as soon as you’re considered late in repaying the loan. The result – your bank charges you an NSF (non-sufficient funds) fee, the depository bank charges the payday loan center a Returned Deposit Item fee which will be passed back to you, and you’ve committed fraud and could be legally prosecuted, with resulting fines or jail time. That’s absolutely frightening.

If you know that you can’t make the payment on time, what do you do? You ask for a roll-over or extension. And there begins the vicious cycle of payday loan debt, because you’ve got to pay the fee again. So, that desperate borrower, who needed to borrower $500, when he initiated the loan, he paid $125, then when he got an extension, that was another $125 – that’s $250 worth of interest or fees on a $500 loan. You can see how things can escalate, can’t you? What if it has to go beyond that first roll-over?

When you’re basically living hand-to-mouth, any little emergency can really set you back. But be honest with yourself, before you walk into one of those “legalized” loan shark outlets -- if you didn’t have enough money to cover the expense this week, how will you ever have enough next week? Sell your kid? No, you don’t have to do that. What you need to do is call up the credit card company, or the bank, or the store with the charge card, or the utility company or whomever you owe the original debt to, and tell them the truth -- you’ll be late with the payment and ask if you can work out a repayment schedule – believe me, they want their money and will be willing to do this. Even if you're charged late fees, it’s not going to be the usurious fees of the payday loan center. And your patella gets to stay in one piece.

-- Debt Diva for DebtStoppers