NEW YORK (MainStreet) — Nevada attorney Jared R. Richards, a partner with the Clear Counsel Law Group, is a jack-of-all trades when it comes to financial law, and that includes between 15 and 20 bankruptcy cases every month. Somewhere between 5% and 10% of these involve car titles loans, he guesses, and between 20% and 25% involve payday loans.
"There's not a lot of recourse in Nevada," he says of taking on loan companies. "If they've committed fraud or lied to you, that's misrepresentation." Otherwise, there's not a lot that people can do if they've gotten in over their head with a payday loan, car title loan or other toxic loan product.
"We don't have an anti-usury statute," Richards says. "If anything we have an anti-anti-usury statute — lenders can charge whatever interest rates they want."
Payday loans and car title loans can have interest rates as high as 900%, which Richards says he has actually seen. Most that come across his desk are between 450% and 700%, and it's not just the destitute taking them out. One of his worst cases involved a man who was making around $80,000 a year. He took out a single payday loan and wasn't able to make the payment on time ... so he took out another payday loan. This quickly became a cycle that left him ruined.
Randy Padawer, a consumer advocate with LexingtonLaw, gets straight to the point: "Title loans are a terrible idea."
When you take out a title loan, you're generally getting way less than the actual value of your car, he says. What's more, you're giving the title loan company permission to take your car from you. If things are that bad, Padawer says, you should sell your car, buy a much cheaper one and use the money for your expenses.
If your finances are this far gone, the last thing you’re going to need is a toxic loan product such as a title loan or a payday loan. "Consumers lose the title loan game every single day," he says. "Literally! They lose their cars."
Payday loans might start out a little more innocuously. You're out of money and have an emergency. You just need your next paycheck to come through. But as Richards points out, people don't understand how quickly they can end up with a loan generating interest for the lender at a whopping 700%. "Thirty percent interest for a loan is high, but it's not totally insane," he says — but that 30% is going to be calculated monthly or sometimes even weekly.
"When we start considering effective APR, we really start going down Alice's rabbit hole," Padawer says. In his example, someone goes into a payday loan business for $2,000. They have to pay 10% interest — a modest rate for a payday loan — bringing their total to $2,200. But if they fail to pay that at the end of the week, they're not just on the hook for $2,200. They're having interest calculated on $2,200, which means that next week they're going to owe $2,420. The week after that, it will increase to $2662. By the end of the month, they owe $2,928. In a single month, they've spent almost a thousand dollars for the privilege of having money for a month. What’s more, this doesn't even include the exorbitant fees often associated with borrowing money from payday lenders.
The bottom line is this: If you’re even thinking about getting a payday loan or a title loan, you probably have a lot of other issues with your finances. Rather than going for a quick fix that's just going to pull you deeper down into the quicksand, look for ways to restructure your finances. Look into free credit counseling from a nonprofit or other help. Nothing about these predatory loan products is going to do anything but drag you down further.
"Taking out one of these loans is very dangerous," Padawer says. "And no one ever goes into them thinking that they’re going to go bad."
— Written by Nicholas Pell for MainStreet