It's an American injustice that's morally wrong. But, the federal repeal of usury laws makes it perfectly legal for credit card companies to rip off consumers with steep interest rates.
San Diego, CA (PRWEB) June 15, 2010
Debt Free League warns latest draft of financial reform bill doesn't protect consumers against abusive payday loan sharks or reduce debt schemes that create sub prime credit card debt. For banks, it will be business as usual to sink Americans into a vicious debt cycle. However, one exception is Bremond McClinton. The college student received a pre-qualified, sub-prime credit offer offering him funds for financial emergencies, bills, or medical expenses. No home ownership or perfect credit was required. If he applied online or called toll-free, the $700 loan would be deposited in his bank account in 24 hours. Fortunately, he found out beforehand that the credit offer was actually a predatory lending scheme.
The cautious Debt Free League intern took the too-good-to-be-true credit offer for review to the debt management company Operations Director, Gerardo Hernandez.
Hernandez quickly dissected the fine print. The offer was made by a solicitor for a notorious issuer of sub prime credit cards. This time, the bank was marketing a short-term payday loan.
Also a skilled financial planner and life insurance agent, Hernandez warned McClinton not to accept the $700 loan, which had a 324.11 annual percentage rate (APR). The debt trap required 12-biweekly payments of $115.45 to pay a $2,770.80 ultimate price tag.
Early financial advice helped McClinton escape the jaws of a loan shark. But many of Hernandez' clients had no warning in sight. They came to his company for debt relief to escape persecution of predatory lenders.
Hernandez indicates "Payday lenders insidiously target low-income and/or credit-challenged consumers, who are at a greater risk of defaulting on their bills. The loans are marketed as a way to pay bills until the paycheck arrives. But their short-term loans get people into a dangerous debt cycle."
Borrowers, who are enslaved by unreasonable interest rates and fees that can reach 1,000 percent, often have to refinance one payday loan after another. The highway robbery exists because payday lenders' activities are unrestricted in various states.
In California, payday lenders are exempt from the California Finance Lenders Law, which limits small loan interest rates to 28 percent. Additionally, the upcoming financial reform bill, which is supposed to protect consumers against credit abuses, also exempts payday lenders.
"With consumers facing these hard times, it's blatantly irresponsible for federal legislators to exclude payday lenders from the authority of the financial reform bill", Hernandez contends.
Unfortunately, the allies of credit card debt pioneers, Visa, Discover, and Mastercard were also given a free pass by the reform bill to continue gouging consumers with exorbitant interest rates.
Hernandez adds, "It's an American injustice that's morally wrong. But, the federal repeal of usury laws makes it perfectly legal for credit card companies to rip off consumers with steep interest rates."
The culprit that unrestricted interest rate caps is the 1978 Supreme Court decision, Marquette National Bank v. First of Omaha Service Corp, which allows national banks to charge the highest interest rate allowed in the bank's home state, regardless of where the credit applicant resides. There's no limit to how much interest banks can charge.
It seemed miraculous when Sen. Sheldon Whitehouse (D-R.I.) introduced a vital amendment to the financial reform bill that would allow states to cap credit-card interest rates. But, the proposal was defeated in May, 2010.
This means that sub-prime banks still have the green flag to continue murderous credit card offers, such as charging annual fees of $150.00, monthly fees of $9.95, and a 24.5 percent APR plus the prime rate.
Luckily, debt reduction companies like Debt Free League are out there to help reduce the debts acquired by victims of sub prime credit cards and payday loans.
Hernandez cites, "We help people with financial hardships to level the playing field and escape the brutality of predatory lenders by negotiating debt payoffs for pennies on the dollar." Some of the company's credit card debt reduction work is evidenced in settlement letters posted at their website.
It's refreshing to see consumers still have defenses against abusive creditors. Thanks to flaws in the financial reform bill, predatory lending won't be going away any time soon.