Chicago, IL-April, 16, 2009 - In the past year, complaints to the Better Business Bureau of Chicago and Northern Illinois against payday lenders increased substantially. From March 2007 through March 2008, five complaints were filed. From March 2008 to March 2009 this increased to 30 complaints filed.
“This is an unfortunate sign of the times,” said Steve J. Bernas, president & CEO of the Better Business Bureau of Chicago & Northern Illinois. “When consumers are shocked and worried about a pay cut or job loss, they are too often attracted to the nearest source rather the most reasonable source of assistance to help make ends meet.”
Bernas explained that payday loans, which are also known as short-term high-rate loans, cash advance loans, check advance loans, or title loans are very expensive forms of credit. He said that a review of complaints filed with the BBB show that consumers generally were borrowing small amounts between $300 and $700, but in some cases were paying interest rates of more than 600 percent.
“It is sad that there are some businesses that take advantage of people at a desperate time in their lives simply to make exorbitant profits,” stated Bernas. “Payday loans should be among the last options for people, rather than the first place people go to.
A resident of Hazel Crest, IL, Oluwabunmi Owiku-Mitchell stated, “I took out a payday loan for $450. I paid around $315 a month for four months – a total of $1,260 – and according to my verbal agreement with them I was paid up. However, they sent a garnishment notice to my employer and said that I had paid nothing toward the loan and had never even notified me that they thought that I was not paid up. I was really embarrassed and it does not look good on your job. I kept all of my receipts and asked them for proof. They said that I still owed over $700. That’s when I filed a complaint with the Better Business Bureau. The lender then said that I only owed around $70 for the loan, but did not refund anything.”
Bernas noted that too often consumers don’t completely read the loan agreement or don’t fully understand what they are committing themselves to pay.
Julie Larson of Elmhurst, IL is one such victim: “I borrowed $2,000 and made several payments of $1200 a month. When I wanted to pay it off they told me that I still owed $2,612, which would be more than $3,000 in interest for a $2,000 loan. I was ridiculous for signing the contract.” Larson continued, “I was two weeks late with a payment and there was a $600 late fee. I did not see the late fee agreement on the contract. I did not understand what I would end up owing. If it is not illegal, it should be.”
Many of the BBB complaints also allege poor customer service and telephone harassment.
Chicagoan Tuck Chow said, “I filed an application for a $600 loan and they said it was approved. An hour later they said it was denied. I asked for my personal information back—pay stubs, social security number and bank account number. They refused to give it back and said that they needed it for their records. What records? I never received a loan. I am concerned about what they will do with my information. Now I get phone calls with loan offers that I do not want.”
The BBB notes that the vast majority of people have other options instead of using a payday loan operation. All other options should be investigated. Here are some recommendations:
- Make sure that you really need the money. How crucial is the service or the product that you plan to use the money for? Could you do without it until you can save some money on your own?
- Do you have a savings account or other type of financial account from which to draw emergency money that would cost you less than a payday loan with exorbitant interest?
- Are there items that are not essential that you could sell to obtain the necessary cash?
- Call your creditors. Before you borrow new money, contact your credit card and mortgage lenders. They may offer some leniency on your current debts, which would free up some cash for you to use in an emergency. Some have hardship programs that permit skipping a payment or making a smaller minimum payment. Maybe your creditor would be willing to reduce your interest rate.
- Consider a loan from credit unions, reputable small loan companies, advance pay from an employer, or local community-based organizations that make small business loans to individuals.
- When considering a loan, get at least two or three quotes from different lenders so you can compare the finance charges and the APR (Annual Percentage Rate).
- Read the entire loan agreement and ask questions if you don’t understand.
- Always research companies first with BBB by reviewing BBB Reliability Reports free of charge online at www.bbb.org.
