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What You Should Know About Payday Loans

Posted: July 22, 2016 by Jeffrey J. Randa

The payday loan industry is a controversial one, with regular disagreements over what regulations should be placed on payday lenders. As lawmakers explore regulating the payday loan industry, one man who played a major role in bringing payday loans to Michigan speaks out about his experience with the payday loan empire that he operated.

As the former payday loan business owner explains, most debtors who take on payday loans end up trapped in a cycle of not being able to repay their debt.  If you are in this situation and you have outstanding payday loans or other burdensome debt that is affecting your life, you should speak with a Utica bankruptcy lawyer to find out what options are available to you.

A Look Inside the Payday Loan Industry

The Intercept published a lengthy interview with a former payday loan lender that provides an insider glimpse into how payday loans work. The man first discovered the payday loan industry after he had been forced to use a local check casher in Florida following his own bankruptcy. At the store, he was offered a payday loan.  He soon realized there were payday loan stores everywhere he looked in Florida, but there were very few in Michigan.

He returned home to Flint, convinced his in-laws to borrow $150,000 against their home, and began his payday loan empire. He opened his first store in a strip mall and called it Cash Now. At that time, there was one other big national payday loan chain and a check cashier was selling the loans, but there was almost no competition.

He charged very high rates on payday loans, with a $16.50 fee on every $100 borrowed, and he put up lawn signs around town saying “Need Cash Now.” Within a week, he had made $10,000 in loans.  Within a year, he was making loans of around $100,000 per week and was generating $50,000 a month in fees.

After opening his first store, he began expanding. He found investors by running ads in the Detroit Free Press and getting potential partners to work with him to find a suitable site for a Cash Now store. He would then take on the expense of getting the store up and running, as well as doing the initial advertising.

His partner would put up the cash for a loan. He would collect 27 percent of the stores’ revenues on an ongoing basis.  He ended up with 30 partners and together they opened around 40 payday loan stores throughout southeastern Michigan.  By the mid-2000s, he was making around $1 million per year in profits.

He has since sold his properties, gotten out of the business and has become a Consumer and Anti-Predatory Lending Activist.  He describes how each store he owned typically had between 400 and 500 customers who had loans they couldn’t pay. As many as 80 percent of the customers ended up trapped for a year or longer. Most took out multiple loans and paid thousands of dollars in fees.

Customers who are trapped in this cycle often declare bankruptcy eventually, but usually do so after wasting a substantial amount of money. If you find yourself in this situation, don’t wait — get help from a bankruptcy attorney right away to explore options for escaping the debt trap.

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