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Released: March 04, 2013
Bleeding the borrower dry
Source: New York Times Editorial
New York is one of 15 states that have banned the predatory, high-interest loans that payday lenders commonly use to pillage low-income borrowers. But offshore lenders increasingly get around state laws by issuing predatory loans over the Internet. Worse still, as the Times’s Jessica Silver-Greenberg reported recently, banks in the state are profiting from the loans by allowing the Internet lenders to automatically withdraw payments from the borrower’s account, in some cases without his or her permission. When the borrowers — or their lenders — overdraw on the accounts, the banks get to collect fat overdraft fees.
A new study by the Pew Charitable Trusts finds, for example, that only about 14 percent of borrowers can afford to take enough out of their monthly budget to repay the average payday loan. Instead, average borrowers carry a debt for five months, during which time they pay repeated fees to renew the loan. By the fifth month, someone who borrowed $375 will have paid about $520 in interest alone.
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