The research conducted by New Which revealed that there are many consumers who are struggling to pay for food and bills who are caught in the payday installment loan debt trap. In addition, the research also shows that websites of most payday installment loan lenders are exacerbating the problem.
From over 60% of consumers who took out payday installment loans, most of them have used the money to pay for household bills or to buy other daily needs, such as food, groceries, and other household expenses. The results of the research have shown an alarming picture of how consumers are getting into the debt trap and have fallen in a downward spiral of debt, due to exorbitant penalty charges because many of them cannot afford to repay their payday installment loan on time.
Here are some of the common problems faced by payday installment loan consumers:
· A quarter (about 45%)of those consumers who had taken out payday installment loans said they had been hit by hidden charges, such as high fees.
· One out of five indebted consumers won’t be able to pay back the payday installment loan on time.
· About one third of consumers are experiencing greater financial problems as a result of taking out a payday installment loan.
· The debt trap starts from 57% of consumers being encouraged to take out further loans and 45% rollover their loans at least once.
· About one third of consumers were bombarded with unsolicited calls, texts and emails before they ever signed an agreement.
According to the Consumer Credit Counseling Service (CCCS), payday installment loans are being used by less than 1.2 million American consumers per year. This government-independent debt agency has investigated 34 payday installment loan websites and surveyed at least 3,786 people, of whom 301 of them had taken out payday installment loans.
So why do consumers have a hard time coping in the debt trap after taking out a payday installment loan? Here are some of the reasons revealed in the research of New Which.
· Their analysis on 34 most popular payday installment loan companies websites found that consumers face high charges if they repay their loan late, including a potential $20 (more or less) charge if repayment is 10 days late. Most of the websites, however, analyzed failed to show clearly their charges in case of payment defaults.
· Consumers are allowed to take on credit they couldn’t afford. It was found that 8 out of 34 lenders don’t carry out any credit check as part of their approval procedure. In fact, about two-thirds of the consumers surveyed were not even asked about any aspect of their financial situation aside from their salary.
· Some payday installment loan websites failed to provide any terms and conditions. There were even a few that had little or no information about a consumer’s rights and obligations or any references for free debt advice. Out of 34 lenders, 14 of them failed to inform consumers about their complaints procedure.
Various consumer protection groups have urged legislators to impose regulations that are stricter about charges for payday installment loans. As the number of consumers who are getting caught in a debt trap and facing high penalty charges increases, the government must have strict guidelines to protect consumers, but not at the expense of shutting down this financial facility.