Debt Traps: Payday Loans, Car Title Loans, Tax Refund Anticipation Loan

1. Consumer Affairs Branch
Fairfax County Department of
Cable and Consumer Services
fairfaxcounty.gov/consumer

2.  Who is a target?
◦ People with credit problems
◦ Low-income individuals
◦ Military members
◦ 50+
◦ Limited English skills
◦ Anyone who is not informed!

3.  Unfair terms and conditions
 High interest rates
 Deceptive marketing
 Aggressive sales tactics
 Loans made without consideration of
borrower’s ability to pay
 Prepayment penalties
 Offer unnecessary products or services

4.  Payday loans
 Car Title loans
 Tax Refund Anticipation Loans
 Over-draft Protection Loans
 Predatory mortgage lending
 Foreclosure rescue scams
 Rent-to-own stores
 Buy Here, Pay Here auto dealers
 Pawn shops

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8.  A short-term loan with high interest and fees
 Usually for 2 weeks or less.
 You sign a contract and give the lender a
personal check as collateral for a cash
advance.
 The lender agrees not to deposit the check
for a specified period of time.

9.  Same high interest and fees as store-front
lenders.
 Gives lenders more direct access to the
borrower’s bank account.
 Illegal in Virginia.
 Report to the Virginia Bureau of Financial
Institutions at 800-552-7945 or 804-371-
9657.

10.  One payday loan at a time per borrower.
 A payday loan can not be made on the same
day another loan is paid in full.
 A borrower cannot have more than 3 payday
loans outstanding at the same time.

11.  The SCC maintains an Internet database.
 Payday lenders are required to check before
making any loans to be sure the applicant is
eligible for the loan.
 More details are available at
www.scc.virginia.gov/bfi.

12.  Example of a $500 payday loan
◦ You pay a 15% lender’s fee
(15% of $500 = $75)
◦ You write a check for $575
◦ You get $500 cash in return
◦ The $75 interest you paid for the loan calculates to
an Annual Percentage Rate (APR) of 390%

13.  Original loan = $500

14.  You will pay $525.00 in finance charges.
 Your total repayment will be $1025.00.
 The annual interest rate for this loan is 390%
APR.

15.  Borrowers got 13 loans and were expected to
pay each loan back in 16 days.
 Borrower paid $663 in interest to repeatedly
borrow the same $342 over 7 months.

16.  If the loan is not paid
◦ Additional interest and fees will be added.
◦ The lender may deposit the check which may cause
other checks to bounce and your account
overdrawn.
◦ If the check is returned to the lender, additional
fees and interest may be charged.
◦ The lender may take you to court to seek court
costs and attorney’s fees.

17.  Designed to trap borrowers.
 You must pay the entire loan with interest on
the next payday or the lender can take the
money out of your checking account.
 If you pay the loan, you might have to get a
new loan to pay other bills.
 You pay high interest rates.
 May end up paying more than you borrowed.

18.  These practices are prohibited
 Threaten criminal prosecution when you can’t or don’t
repay.
 Impersonate law enforcement.
 Abusive collection tactics.
 Repeated phone calls.
 Visits to home and on the job.
 “We will take care of you”.
 Harassment of family members or friends.

19.  You CANNOT be criminally prosecuted.
 You have the right to close your bank
account
◦ DO NOT let the lenders overdraw your account
causing you NSF fees and possible loss of your
account
 You have the right to pay partial payments
before the due date of the loan.

20.  Lenders cannot refuse your payment.
 You have the right to borrow less money if
you re-borrow from a payday lender.
 You have the right to refuse to get another
payday loan.

21.  What Lenders Can’t Do
◦ Require you to provide more than one check as security
for the payday loan.
◦ Post-date the check.
◦ Require you to provide security other than the check
payable to the lender.
◦ A lender can not provide a loan for more than $500.
◦ If the check you write to the lender bounces, they cannot
threaten to prosecute you.
◦ You cannot go to jail because of a loan secured by a
personal check.

22.  Safeguard your bank account.
 If you cannot pay back the loan when it is
due, contact the lender before the due date
and try to make payment arrangements.
 DO NOT get talked in to getting another loan!

23. Virginia State Corporation Commission
Bureau of Financial Institutions
PO Box 640
Richmond, VA 23218
800-552-7945
www.scc.virginia.gov.bfi
Email: sccinfo@scc.virginia.gov

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27.  A short term loan.
 Usually not longer than 30 days.
 Your car title is used to secure the loan.
 Not regulated.
 About 150 locations in Virginia.
 Majority of borrowers owe 90% of the
principal after 5 months.

28.  What does the lender do?
◦ Put a lien on your title.
◦ Keep an extra set of your keys.
◦ Charge 30% interest per month or 360% APR.
◦ Charge fees in addition to the interest.

29.  What lenders don’t do?
◦ Base loans on the borrower’s ability to pay the loan
back.
◦ Run credit checks.
◦ Tell you the annual percentage rate, they usually
only quote the monthly finance charge.

30.  If the loan is not paid
◦ The lender may take the car and sell it to get the
loan money back
◦ High interest rates build up
◦ You lose the money you paid

31. ◦ You borrow $200 at 25% for 30 days (25% of $200
= $50).
◦ At the end of thirty days you pay the lender $250.
◦ If you can’t pay, another 25% is added. You now
owe $300.
◦ Each month you don’t pay $50 or 25% is added.

32. ◦ At the end of six months, you owe $500.
◦ This is more than twice what you borrowed.
◦ If you can’t pay the loan in full, you car is taken.
◦ You are now deeper in debt with no car.

33.  Borrowers risk losing a vehicle they own free
and clear in exchange for a small cash loan.
 The loan is usually only for a fraction of the
car’s value.
 After several months, you may owe more than
you borrowed.

34.  If the loan is not paid
◦ You will pay high interest rates.
◦ The lender will take the car and sell it to get the
loan money back.

35.  A short-term cash advance that is secured by
your federal income tax refund.
 Consumers pay fees to the tax preparers and
the participating financial institution.

36.  Bank issues a short-term loan to the
consumer.
 A lender can’t guarantee a specific date for
availability of your money.
 You pay to borrow your own money.

37.  Most RALs require the following fees:
◦ Fee for the tax preparation service that prepared your
taxes.
◦ Fee to the tax preparer for preparing and processing
your RAL application.
◦ Fee to the lender or bank that will give you the loan.
◦ Fees range anywhere from $50 to several hundred
dollars, depending on the size of the refund.

38.  Repayment of the loan is usually due within
7-14 days.
 The loan is repaid when your tax refund is
processed by the IRS and paid out to the
bank that loaned you the RAL.
 Refund amount may be reduced by prior
debt.

39.  You have to pay the loan even if the IRS
denies or delays your refund or if your refund
is smaller than expected.
 If your income tax refund is less than the
RAL, you will have to come up with additional
money to pay back the money borrowed, plus
interest

41.  Expensive.
 Loan fees range from $40 to $$$$$.
 Triple digit interest rates of about 60% to
over 700%.

42.  Get a RAL if you:
◦ Value speed over cost.
◦ Impatient and can’t wait 8-15 days.
◦ Can afford to pay high fees.
◦ Sure that the refund amount submitted is correct.
◦ Willing to pay triple digit interest rates.

43.  Go electronic
◦ You’ll get the money almost as fast as you would
with a RAL but without paying any loan fees or
interest.
◦ The IRS has a partnership with tax preparers and
software companies that offers free online tax
preparation and e-filing to some taxpayers.
◦ The Free File program is available to taxpayers
whose adjusted gross income is $56,000 or less.

44.  Direct Deposit
◦ Electronic filers generally get their refund deposited
in to their bank accounts 10-15 days.
◦ Protects against lost or stolen refund checks sent
by mail.

45.  Ask your creditors for more time to pay your
bills and negotiate fees such as late charges.
 Consider a short-term loan from a credit
union or bank
◦ The interest rate for the loan will be lower and loans
can be paid back out several months

46.  Contact a consumer credit counseling agency
that can help you work out a spending plan.
 Arrange a repayment plan with your creditors.
 Don’t do business with an agency that
requests money from you before they provide
assistance or services.

47.  See if you can get an advance on your
paycheck.
 Borrow money from a friend or relative, or
seek help from a nonprofit organization.
 Make payment arrangements to delay or pay
a reduced amount on a bill that doe not
charge interest or has a low interest rate.

48.  Prevent the Debt Trap
◦ Payment plan with creditors
◦ Work out payment terms with utility companies
◦ Advances from employers
◦ Consumer Credit Counseling
◦ Emergency assistance programs
◦ Help from friends and family
◦ Credit union loans
◦ Military loans

49. Virginia State Corporation Commission
Bureau of Financial Institutions
PO Box 640
Richmond, VA 23218
800-552-7945
www.scc.virginia.gov/bfi
Email: sccinfo@scc.virginia.gov

50. Short-term loans
Fairfax County Federal Credit Union
PO Box 1300
Fairfax, VA 22038
703-208-9900
www.fairfaxcu.org
Email: information@fairfaxcu.org

51.  Active duty or retired military should call
800-464-8107 for Military Onesource.
 Navy and Marine personnel may qualify for a
Quick Assistance Loan (QAL) which is interest
free and repayable within 10 months.
◦ Call the Navy Marine Corp Relief Society at 703-696-
4904.
 Coast Guard personnel can contact Coast
Guard Mutual Assistance at 800-881-2462.

52.  To prepare and electronically file your federal
taxes fast, easy, and free:
◦ www.irs.gov
 If you make $56,000 or less a year, you may
qualify for FREE FILE.
 If not, you can e-file.

53. If you earned less than $42,000 in 2009, free
income tax preparation is available. Contact:
Volunteer Income Tax Assistance Program
Falls Church SkillSource Center
703-553-5400; TTY 703-533-5316
www.fairfaxcounty.gov/dfs/childrenyouth/fami
lies_income_tax_prep.htm

54. Consumer Affairs Branch
Department of Cable Communications and
Consumer Protection
12000 Government Center Parkway
Suite 433
www.fairfaxcounty.gov/consumer
Email: consumer@fairfaxcounty.gov
703-222-8435; TTY 711

55. Legal Services of Northern Virginia
4080 Chain Bridge Road
Fairfax, VA 22030
703-246-4500
www.lsnv.org

56. 12000 Government Center Parkway, Suite 433
Fairfax, Virginia 22035
703-222-8435 TTY 711
www.fairfaxcounty.gov/consumer
consumer@fairfaxcounty.gov
fairfaxcounty.gov/consumer