Nine Signs You Might Be Getting A Predatory Payday Loan
(from the Center for Responsible Lending, www.responsiblelending.org )

1. Triple digit interest rate
   Payday loans carry very low risk of loss, but lenders typically charge fees equal to 400% APR and higher.
   
   
2. Short minimum loan term
   75% of payday customers are unable to repay their loan within two weeks and are forced to get a loan "rollover" at additional cost. In contrast, small consumer loans have longer terms (in NC, for example, the minimum term is six months.)
   
   
3. Single balloon payment
   Unlike most consumer debt, payday loans do not allow for partial installment payments to be made during the loan term. A borrower must pay the entire loan back at the end of two weeks.
   
   
4. Loan flipping (extensions, rollovers or back to back transactions)
   Payday lenders earn most of their profits by making multiple loans to cash-strapped borrowers. 90% of the payday industry's revenue growth comes from making more and larger loans to the same customers.
   
   
5. Simultaneous borrowing from multiple lenders
   Trapped on the "debt treadmill", many consumers get a loan from one payday lender to repay another. The result: no additional cash, just more renewal fees.
   
   
6. No consideration of borrower's ability to repay
   Payday lenders encourage consumers to borrow the maximum allowed, regardless of their credit history. If the borrower can't repay the loan, the lender collects multiple renewal fees.
   
   
7. Deferred check mechanism
   Consumers who cannot make good on a deferred (post-dated) check covering a payday loan may be assessed multiple late fees and NSF check charges or fear criminal prosecution for writing a "bad check."
   
   
8. Mandatory arbitration clause
   By eliminating a borrower's right to sue for abusive lending practices, these clauses work to the benefit of payday lenders over consumers.
   
   
9. No restrictions on out-of-state banks violating local state laws
   Federal banking laws were not enacted to enable payday lenders to circumvent state laws.

1. Excessive fees
   Points and fees are costs not directly reflected in interest rates. Because these costs can be financed, they are easy to disguise or downplay. On competitive loans, fees below 1% of the loan amount are typical. On predatory loans, fees totaling more than 5% of the loan amount are common.
   
   
2. Abusive prepayment penalties
   Borrowers with higher-interest subprime loans have a strong incentive to refinance as soon as their credit improves. However, up to 80% of all subprime mortgages carry a prepayment penalty -- a fee for paying off a loan early. An abusive prepayment penalty typically is effective more than three years and/or costs more than six months’ interest. In the prime market, only about 2% of home loans carry prepayment penalties of any length.
   
   
3. Kickbacks to brokers (yield spread premiums)
   When brokers deliver a loan with an inflated interest rate (i.e., higher than the rate acceptable to the lender), the lender often pays a “yield spread premium" -- a kickback for making the loan more costly to the borrower.
   
   
4. Loan flipping
   A lender "flips" a borrower by refinancing a loan to generate fee income without providing any net tangible benefit to the borrower. Flipping can quickly drain borrower equity and increase monthly payments -- sometimes on homes that had previously been owned free of debt.
   
   
5. Unnecessary products
   Sometimes borrowers may pay more than necessary because lenders sell and finance unnecessary insurance or other products along with the loan.
   
   
6. Mandatory arbitration
   Some loan contracts require "mandatory arbitration," meaning that the borrowers are not allowed to seek legal remedies in a court if they find that their home is threatened by loans with illegal or abusive terms. Mandatory arbitration makes it much less likely that borrowers will receive fair and appropriate remedies in cases of wrongdoing.
   
   
7. Steering & Targeting
   Predatory lenders may steer borrowers into subprime mortgages, even when the borrowers could qualify for a mainstream loan. Vulnerable borrowers may be subjected to aggressive sales tactics and sometimes outright fraud. Fannie Mae has estimated that up to half of borrowers with subprime mortgages could have qualified for loans with better terms.
   
   According to a government study, over half (51%) of refinance mortgages in predominantly African-American neighborhoods are subprime loans, compared to only 9% of refinances in predominantly white neighborhoods.
   
   

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