Are predatory lenders dangerous?

Are predatory lenders dangerous?

The TLDR: Predatory loans can be incredibly risky. Scroll to learn more about the impact of predatory loans on an individual as well as a community as a whole. 

The impact of predatory lending goes far beyond just financial harm. It can have a significant emotional, physical and social toll on the affected individuals, their families and entire communities.

Falling prey to predatory lending practices can lead to long-term financial hardship. This intentionally-designed system is built to trap borrowers in a cycle of debt, making it difficult for them to escape. 

Predatory lending costs U.S. consumers billions of dollars every year

The social impact of predatory lending and the tactics they use to target people in need is devastating. Predatory lenders often target communities where people are struggling to make ends meet, exacerbating already difficult living conditions. 

According to a report by the Center for Responsible Lending, payday loans alone cost American consumers over $9 billion in fees every year. This amount is just a small part of the total cost of predatory lending, like high-interest loans, car title loans and other forms of predatory lending.

A study by the Consumer Finance Protection Bureau (CFPB) found that four out of five payday loans are rolled over or followed by another loan within 14 days, leading to repeated fees and interest charges that can quickly spiral out of control.

Predatory lending practices can also erode trust in financial institutions, making it difficult for people to want to access legitimate financial services in the future.

Predatory lending can cause financial and psychological harm

It’s not uncommon for someone in need to turn to a payday loan to gain access to cash quickly. Even worse, it’s generally not a one-time thing. 

According to a study from the Consumer Finance Protection Bureau (CFPB), “two-thirds of payday borrowers had seven or more loans in a year. Most of the transactions conducted by consumers with seven or more loans were taken within 14 days of a previous loan being paid back—frequently, the same day as a previous loan was repaid.” 

These loans often start with manageable payments, but the interest rates quickly escalate, making it difficult for borrowers to keep up with their payments. In addition, the high-interest rates and unfavorable repayment terms of predatory loans can lead to wage garnishments, repossessions, and even foreclosures, causing long-term financial hardship for borrowers.

In these cases, borrowers may be forced to choose between paying for basic necessities like food and housing or making loan payments, leading to increased poverty and homelessness.

In addition to the financial burden, predatory lending also takes a significant emotional toll on individuals. Borrowers who fall prey to these lenders often feel ashamed, embarrassed and powerless. They may also experience feelings of hopelessness and despair as they see no way out of their financial situation. 

It is crucial for governments, regulators and communities to take action to protect people from predatory lending. Governments can enforce stricter regulations on lenders, such as capping interest rates and fees and requiring full disclosure of loan terms. Regulators can also play a role by enforcing these regulations and holding lenders accountable for their actions.

Communities can also take action by educating their members about the dangers of predatory lending and providing resources and financial support to those who may be in need of a helping hand financially. 

Zirtue Team
March 16, 2023
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