Beware Of Loans With Interest Rates Higher Than 100 Percent
Several weeks ago, Jelena McWilliams ended her tenure as chairperson of the Federal Deposit Insurance Corporation (FDIC); President Biden will appoint a new chairperson soon. The change in FDIC leadership could mean a change in its policies on consumer lending. Consumer advocates and struggling borrowers hope that the new FDIC leader will close some loopholes that enable online lenders to provide consumer loans with much higher interest rates than what banks are allowed to charge; some of them have interest rates above 100 percent. So-called “rent-a-bank” loans are the next worst thing to payday loans. Even if you make all your payments on time, you could end up spending double the principal amount paying back one of these loans. A Plan debt consolidation lawyer can help you find a lower interest loan to get you out of the mountain of debt that the rent-a-bank-loan got you into.
Sarah and the Rent-a-Bank Loan Nightmare
Florida law allows banks to charge interest on personal loans, as long as the interest rate does not exceed a certain amount; for example, the maximum amount they can charge on a $2,000 loan is 31 percent. When Sarah Ahmed moved from Iowa to Florida with her young son, she needed to borrow $2,000 to rent an apartment and to pay for afterschool care for her son on the days when she worked. Because of her student loan debt, she could not qualify for a bank loan in that amount, so online lenders were her only option. She took a loan from Personify Financial, but its interest rate was 97 percent. By the end of a year, she had made more than $1,900 in payments, but only $800 of that had gone to principal.
Sarah was able to escape from the rent-a-bank loan nightmare by consolidating her debt. A nonprofit organization called Good Capital Fund helped her get a loan with a much lower interest rate. Thus, she paid back the rent-a-bank loan and is now making payments on the debt consolidation loan, where the monthly payments are lower and she can pay down the principal more quickly.
Consumer advocates, such as the ones at the National Consumer Law Center, consider rent-a-bank schemes a form of predatory lending. Consolidating your debt can be a fast and cost-effective way to get away from the unaffordable payments of a rent-a-bank loan, where you make very little progress toward paying off the principal even when a substantial portion of your income goes to the loan payments. There are plenty of affordable debt consolidation loans out there, but there are also plenty of scams. Use caution when choosing a loan to consolidate your debt.
Contact a South Florida Bankruptcy Lawyer About Breaking Free From Predatory Loans
A South Florida debt consolidation lawyer can help you find the right low interest loan that will enable you to pay off a predatory loan from a rent-a-bank scheme or other online lender. Contact Nowack & Olson, PLLC in Plantation, Florida to discuss your case.