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For many caught in vicious payday lending cycle, bankruptcy filing is best option

TIFFANY L. PARKS
Special to the Legal News

Published: September 1, 2015

Backed by splashy websites and catchy radio and television commercials advertising fast cash, the payday lending industry is big business.

Companies appeal to clients who are short on cash by offering quick application processes, exceptions for bad credit and fast money directly deposited into bank accounts.

Opponents of the industry have blasted companies for boldly professing to help clients out of financial jams while charging steep fees and interest rates that can foster debt cycles.

As advertised on the Check Into Cash website, the annual percentage rate for a $100 single-payment payday loan may range from 260 to 782 percent.

ACE Cash Express, which promises “money when you need it most,” offers APRs that vary from 65 to 1,409 percent.

Assuming a 14-day loan, a $200 advance from Check ‘n Go has an APR of 676 percent.

Laura Nesbitt of The Nesbitt Law Firm is one of several central Ohio attorneys who has railed against the cash advance machine.

“Many times, circumstances quickly arise to create an immediate need for cash. If an individual does not have established credit when the need arises, a payday loan company is often the place he will turn,” she said.

“Others may find that they have been struggling for a long time and run out of borrowing power on credit cards, so they turn to payday lending. In either case, once the first loan is taken, it often creates a cycle of re-borrowing that perpetuates the debt and pads the pockets of the payday loan company with fees and interest.”

Nesbitt, who has described payday lending as an “economic shell game,” said there is rarely any actual progress for debtors toward payment on principal amounts owed on loans.

“Debtors who are taking payday loans often didn’t have that ability to pay lump sums back on debt before they took the loan and that position doesn’t change when the creditor comes around to collect,” she said.

“That is where I come in. I help my clients to gain a financial solution with debt relief that is permanent and long term. It is very fulfilling to be able to offer that relief.”

For payday loans specifically, Nesbitt says usually the most certain, fastest and permanent solution is to file for bankruptcy protection.

“Many individuals do not believe they will qualify for bankruptcy relief or that representation will be too expensive. However, this is incorrect,” she said.

“Hiring an experienced bankruptcy attorney to assist in a bankruptcy filing is affordable and saves the debtor money that he would have otherwise spent trying to repay unaffordable debt.”

In addition to Nesbitt’s firm, others such as Guerrieri, Cox & Associates offer services such as bankruptcy, debt consolidation and severing a payday lending company’s access to a checking or savings account.

Nesbitt has called for stricter regulation of the cash advance industry.

“Ohio is a historically creditor-friendly state,” she said.

“The collection laws in Ohio give creditors many strong-armed legal collection options against a defaulted debt. These payday lending companies are setting up loans for people who are often desperate and have very little means to repay even a few hundred dollars.”

In recent years, various lawmakers have introduced bills into the Ohio General Assembly in an attempt to rein in Ohio’s expansive payday lending system.

Until then, Nesbitt advocates using caution with cash advance companies.

“Payday lending is a very slippery slope. The borrower should have the financial means and a plan to repay the loan according to its terms,” she said.

“A borrower may take a payday loan with every intention to repay the debt, but often he simply does not have the means to complete repayment. The payday loan companies know this; they make their money off of fees and interest on the loan, not off of principal repayment. The goal of the payday loan company is to make money for the company, not to help borrowers in need.”

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