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I was not sure how payday loans worked but I know that a few of my family members are going to them. What I discovered when I searched for a website to find information on them? Well, just let me say that it is heartbreaking :( . For every $100 you borrow you have to pay them back $25 and if you for whatever reason do not pay them back on your next payday they can and will charge $40 plus You can also be charged up to 60% interest (annual interest rate) if you pay late. How can this even be Legal????? I feel sick. This is a horrible vicious cycle to get trapped into.
 

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Thankfully they're out of business now, but there used to be a company out west that would charge triple digit interest rates for payday loans.
 

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I've wondered myself how they could be legal. I don't understand the difference between that and loansharking, which isn't legal. I thought there were limits to how much interest could be charged.

We used to go to a pawn shop in a big town years ago, as buyers, not to pawn things. We got to be friendly with the manager there. He said the things that happened to people that forced them to pawn their treasures and then not be able to reclaim them were absolutely heartbreaking.
 

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they are only legal in some states, i.e., the ones where the big companies can influence the legislators to make them legal. This is a long clip but well worth watching.
 

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We have them everywhere here in California despite many counties putting a cap on how many are allowed to open. What's worse is they always open in poorer neighborhoods and prey on people with fixed incomes that will struggle to pay them back.

I totally understand being in a financial bind and not having credit cards or a bank willing to assist you, but yeah the fees and interest rates on pay day loans are outrageous. There really needs to be a more affordable option for people in situations like this.
 

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I've seen horrible situations caused by these payday loans. Some with interest at 500%. Taking a gun and shooting yourself in the foot would be less painful than dealing with these ripoff companies. AVOID THEM AT ALL COSTS.
 

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I don't really have a problem with them. Either people read the terms and are okay with them, or people don't read the terms and they get what's coming. The rates and fees are astronomical, but no one is being forced to go to those locations and signing up.

Rent-A-Centers aren't much better, their rates are crazy too. But if you've gotta have something, there's always someone out there to provide it. For a price...
 

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Ignorance is the problem, not payday loans themselves. Unfortunately too many people cannot think past the next month or even their next paycheck. More education about budgeting and the *real* cost of any type of debt as well as what other options are available would do a lot more for a community than trying to regulate these types of businesses. That's not to say they should be allowed to run competely free, but the real problem is the choice a person makes in these types of situations, not the choices that have been made available to pick from.
 

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I don't really have a problem with them. Either people read the terms and are okay with them, or people don't read the terms and they get what's coming. The rates and fees are astronomical, but no one is being forced to go to those locations and signing up.

Rent-A-Centers aren't much better, their rates are crazy too. But if you've gotta have something, there's always someone out there to provide it. For a price...
I agree...to a point. I think they SHOULD be illegal due to their rates. I think they simply prey on those already in a bind, and it sure doesn't do anything but make it worse. People get trapped in them, taking out new ones to cover the old ones, and if they weren't able to make their bills before, boy oh boy, add in those ridiculous rates and it just compounds. I think they're disgusting. Sure, they're not illegal in some places, and business is business, but I don't know how the people who run them can sleep at night!

Bee, maybe you could try to help your family members find better solutions that won't cost them so dearly? I'm sure you are, if you've the kind of relationship where that's a comfortable thing to do. Education is key, but people get backed into a corner and do really stupid things out of desperation.
 
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Maximum costs, cools off periods and penaltys by province:


Province Maximum cost of borrowing for a $100, 2-week payday loan “Cool-off” period to cancel the payday loan Maximum penalty for a returned cheque or pre-authorized debit
British Columbia $23 Next business day $20
Alberta $23 2 business days $25
Saskatchewan $23 Next business day $50
Manitoba $17 48 hours, excluding Sundays and holidays $20
Ontario $21 2 business days
Québec 2 days
New Brunswick 48 hours, excluding Sundays and holidays $40 (default penalty)
Nova Scotia $25 Next business day $40 (default penalty)
Payday loans: An expensive way to borrow
 

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I'm probably way to the left of most of the people on this forum but I think payday loans should be tightly regulated at the Federal level and maximum interest rates set. As an educator, I also think consumers need more financial education but, on the other hand, these same people buy cigarettes, booze, and tons of lottery tickets. There is a certain percentage of our population that will spend on these things and not pay their rent. It always comes down to a heavy philosophical discussion in my classes but, at least, we throw it out there and knowledge is gained. What one does with the knowledge is up to them.
 

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I used to use them occasionally when I was a single mom. I had tons of medical debt, no credit cards, and terrible credit, so it was the only kind of credit I could get. I made too much income to qualify for any social services or charity, but my income could vary from $1000 a month to $2500 a month, and sometimes the lower months would happen two or three in a row. I saved as much as I could during the higher earning months, but invariably I would find myself out of food with no money left in savings. Since my income was largely seasonal I knew when I could count on business, and my income, picking back up, so I never had a problem paying them off. I also was careful to not borrow more than I needed.

How it worked was this. For every $100 I borrowed the fee was $15. I wrote a check for $115 (if I was borrowing 100) and post dated it. I could choose any day within six weeks to post date it for. On that date my check would clear. Yes, it's expensive credit, but it saved my butt on many occasions. Sometimes if I got sick or missed a lot of work I would go through my savings too quickly. Sometimes the fee to borrow a couple hundred dollars was less than the $150 fee for paying rent late. If I didn't have money for bus fare I'd have lost a lot more than $15 by not being able to get to work.

I agree with CPA-Kim. I think they should be tightly regulated and have more consumer protections, but I don't think they should be illegal. When people have no other options they will have no choice but to turn to illegal loan sharks, or other illegal/morally questionable activities to get the money they need.
 

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I think having them federally regulated would be beneficial. There are always going to be the types of people who will use them irresponsibly, but at the same time there are a number of people in situations like the one seattleLMP describes. Many are quick to say they have other options, but do they really? Often they can't get bank accounts (and if they do the banks will say their credit is too bad for any kind of loan), they have low paying jobs, social services are overextended, they have nothing to pawn or sell, and there's no family or friend to borrow from. What exactly are these better options? Financial education is a huge piece of the puzzle, but when you're already in a severe bind you need a solution.
 

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There's lots of payday loan places here (3 that I can think of). I've used them once or twice but fortunetly I was able to pay it right back. That was about 5 years or so ago, I wouldn't recommend it.
 

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If they become as regulated as other forms of loans, the interest rate will drop, and the payday loan places will likely stop offering the loans altogether. Less return on the higher risk means less companies will take on that risk. I know many people would like to see these places shut down, but as a few have pointed out here, they do have their place and can be used somewhat responsibly.

I just suggest using them as an extreme last resort.
 
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