The Federal Trade Commission has announced that it has reached a settlement deal with a payday loan company that was illegally garnishing the wages of some of its borrowers. Here are the basic facts of the case and some pointers to keep you from getting burned:
- The company offered payday loans. The companies known as GeteCash and LoanPointe reportedly offered consumers payday loans, a type of short-term, high-interest loan considered by many financial analysts to be “predatory.”
- Consumers agreed to online terms and conditions. In order to apply for a loan online, consumers apparently had to check an agreement of terms box. One of these terms, it seems, indicated that the company could garnish a borrower’s wages (that is, take money from their paycheck) if she failed to make loan payments.
- The garnishment was illegal. According to the FTC’s charges, the payday lending company overreached its legal debt-collection abilities. While laws permit federal agencies to garnish the wages of someone who owes the government money, non-government groups aren’t afforded the same privilege.
The FTC apparently took action because the payday lenders not only indicated that they had the same collection rights as the government, but also claimed that their customers knew that they had agreed to the garnishment clause.
Because of the FTC’s actions, those behind the garnishment scam are barred from certain lending practices and responsible for a $38,133 judgment that has been suspended because of their current financial situation.
Don’t Get Burned by Payday Lenders
In recent years, legislators have taken action against the payday lending industry, which can lead struggling consumers into a perilous cycle of debt. Many financial insiders recommend avoiding payday lenders at all costs because of their high cost. Here are some options you might consider before turning to a payday lender if you’re in need of cash:
- Friends and family: Asking to borrow money from a loved one may be hard, so consider this twist: offer to do chores or run errands in exchange for some money. Or, if you’re already swamped, volunteer to write up a formal payment agreement outlining the terms of repayment.
- Your boss: If you have a decent relationship with your boss, consider asking for extra work and/or an advance on pay. This may not work more than once, but if you’re in a serious pinch, an advance on wages will likely hurt your finances less than a payday loan.
- Your credit card: If you aren’t maxed out on your plastic, using it to pay is generally less expensive than taking out a payday loan. Credit cards generally have lower interest rates than payday lenders and offer you more options for paying them back.
If you’ve already turned to payday lenders to keep up with financial obligations, you may want to consider the financial relief that filing for bankruptcy could offer you.
