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What to know and consider before taking out a payday loan

Thousands of payday loan BBB complaints nationally
What to know and consider before taking our a payday loan
Posted at 3:13 PM, May 18, 2020
and last updated 2020-05-19 20:20:00-04

COLORADO SPRINGS — As many struggle to pay bills, fast cash from a payday loan might seem tempting, but thousands of consumers have filed complaints with the Better Business Bureau in the last year saying the experience wasn't what they were expecting and in some cases it left them worse off. Payday loans can be helpful and put much needed cash in your hands, but the experts tell us you've got to read the fine print.

"So I think that while this might be an option. I think it’s your last option," said BBB of Southern Colorado CEO Jonathan Liebert. "I would caution people to read the fine print. Really make sure this is something that they want to do and just really make sure they're paying attention to what those rates are because these rates can be extraordinarily high.

Those rates were such a concern for Colorado voters that back in 2018 voters approved Proposition 111, which reduced the interest rate on payday loans to 36%. It also eliminated all other finance charges and fees associated with payday lending.

Even with these protections, Colorado Springs licensed counselor and mental health expert Sara Correll says with what's going on in the world today, anxiety can get in the way of making good decisions and can leave people especially vulnerable who are facing financial struggles. .

"Anxiety is very normal but when we focus on our anxiety and we allow our anxiety to rule our decisions then we are making emotional decisions. Then we maybe make inappropriate purchases, or we spend more money than we should, or we eat more than we should or we drink more than we should. All as ways to try and quiet that anxiety," said Correll.

So how should we address that anxiety?

"If we can get into the present and stop focusing on the future and we can make decisions based on logic and not emotion," said Correll.

Before you even consider a loan experts say to contact your creditors first too see what relief might be available.

"Any business, any organization that has people that owe them money they're trying to collect on, they're working with folks right now," said Liebert. "They're working with people to make sure they can make those payments and they're giving them some grace."

In the last year consumers have filed about 2,500 complaints about payday loan companies with Better Business Bureau locations across the country. It's why the experts say it's important to do your homework on the company you're dealing with.

“People need to find ways to pay their bills and payday loans kind of appeal to people whose credit may not be good enough to obtain a credit card or a bank loan," said Liebert. "For a lot of people this may be an option for them if they need some type of short-term help for them get by and I think that we really got to make sure that people are aware that you got to be careful about this.”

Consider other options before taking out a payday loan:

Does your bank or credit union offer short term loans?

Check these local institutions to see if a better option is available. Rates for personal loans are between 9 and 17% right now.

Have you thought of asking your employer for an advance?

Can you borrow against life insurance? Talk with your agent to find out if this is reasonable under your circumstances.

Can you borrow against your IRA or 401k? Some organizations have waived or reduced penalties for these options, amid current economic conditions. Check with the carrier of your investment accounts.

Read more about your options -- Can a personal loan help during a crisis? 5 questions to ask
Tips on handling your credit cards amid virus outbreak

Along with overall concerns about the pitfalls of taking out a payday loan, people in desperate circumstances may not realize their dealing with an unlicensed lender online. These could be scammers looking for nothing but your personal information, or unscrupulous lenders making illegal loans.

Information below is from Stop Fraud Colorado

Avoid falling for an unlicensed payday lender by following these tips:

  • Don’t share your personal information without doing research on the company.
  • Even if you fill out the online form but do not hit submit, your information may have already been captured by using keystroke logging.
  • Some companies are actually lead-generators and not lenders, meaning your personal information may be sold to several third-parties lenders.
  • Check the website for a privacy policy. Does it disclose how your information will be shared or protected?

Protect your banking information:

  • Setting up automatic payments with an online payday lender may seem convenient, but you could be allowing an unlicensed company access to your bank account, making multiple unauthorized withdrawals.
  • Find out if the online payday lender has a physical location.
  • Lenders that do not disclose a physical location are often unlicensed and could even be operating outside of the country.
  • If the website does not have a “Contact Us” page, try searching the website’s privacy policy or terms & conditions, often found at the bottom of the homepage.

Read and understand the loan agreement:

  • Does the loan specify that Colorado law applies? A company must be licensed by the State of Colorado in order make loans to Colorado consumers.

Verify the payday lender is licensed to make payday loans in Colorado:

  • Searching the Licensed Supervised Lenders List, available here.
  • In order to become a licensed payday lender in Colorado, the lender must provide specific information to determine if the company complies Colorado’s lending laws.
  • Licensed payday lenders must follow Colorado payday lending laws, which set allowable loan rates and fee limitations.

Anyone who feels they've been taken advantage of by a payday lender should contact the Colorado Attorney General's office right away to file a complaint: https://coag.gov/file-complaint/

For more consumer protection resources, advice, and reviews of payday lenders visit https://www.bbb.org/local-bbb/bbb-of-southern-colorado