When facing an unexpected financial crisis, individuals seek financial relief in whatever way they can. For some, this leads them to take high interest payday loans. After months of pressure from consumer advocates, several large banks are taking meaningful steps to get out of the payday loan business.
Payday loans are also known as deposit advances. This program allows customers to get an advanced payment on their upcoming paychecks. When the customer receives their paycheck, they must pay back the loan, plus an additional fee. The Consumer Financial Protection Bureau has placed restrictive limits on these loans. The bureau’s research has revealed that the average 12 day loan gives rise to an interest rate of over 300%. The results, consumers that use the service are trapped into a cycle of debt that is difficult to escape.
At the start of 2014, several banks announced that they will put an end to this service in their institutions. Wells Fargo, U.S. Bank and Fifth Third have all made plans to stop offering deposit advances to new customers in early 2014. Each bank will end the advances to current customers at various points throughout the year.
For individuals who are stuck in the cycle of high debt, deposit advances serve to pull them further into debt. Unfortunately, not using payday advances may not be enough to get them out of debt. For these individuals it may be the right time to seek bankruptcy advice. A qualified bankruptcy attorney can help these individuals determine which bankruptcy option is best.
Source: NPR, “Wells Fargo, Fifth Third, U.S. Bank To End Payday Loan Program,” Robert Benincasa, Jan. 17, 2014.