It is very hard to pay off the loans. Most lenders will “rollover” the loans by allowing borrowers take out new loans.
A borrower in Illinois was paying her loan back following the payment plan. She saw that the amount she owed was not going down. She asked about it. She learned she was paying an “account protection fee.” This was a payment of $15 for every $50 she borrowed. The account protection fee raised her interest rate from 18 percent to 350 percent a year.
She had no choice but to pay it.
Borrowers who only pay the monthly minimum interest and protection fees are not reducing the amount they owe on the loan.
Lenders say account protection will help borrowers if they lose their jobs. The attorney general of Illinois says the reason for the protection fee is to get around laws that limit interest rates.
Illinois is trying to stop lenders from offering such loans. The state is suing the company “All Credit Lenders.” It has storefronts in Illinois, South Carolina and Wisconsin.
An expert said payday lenders come up with new ideas all the time to get around the laws. As soon as one practice is banned, they find a new way to exploit borrowers. For example, by giving borrowers more time to repay, the loans are not considered or regulated as “payday” loans.
Short-term loans are very important to many people. Many lenders are honest, but some are not. Borrowers have to be alert.
Source: The New York Times March 18, 2014