Should I Take Out a Payday Loan?

You should take out a payday loan when you need a short-term loan or emergency cash advance, do not have other lending options, and understand the potential risks of these loans. Payday loans may have hidden fees, exorbitant interest, and a debt cycle of rollover fees. Vulnerable borrowers with a loan default face potential credit damage, wage garnishment, and debt collector harassment. To get out of a financial trap with a predatory lender, debt relief options include bankruptcy filing, negotiating a payment plan, or contacting a consumer protection lawyer.

“I would encourage people to never take out a payday loan,” says David Humphreys, a consumer law attorney at Humphreys Wallace Humphreys, which serves clients in Tulsa, Oklahoma, and Santa Fe, New Mexico.

“We have tens of thousands of people who are getting social security, retirement, and these [bad-acting lenders] figure out a way to get into that, taking their money and leaving them totally broke.”

A Warning About Payday Loans

Humphreys’ outlook for those Americans stuck in the vicious cycle of debt is grim. According to him, just about the only way out of this type of loan is to file for bankruptcy.

“If you take out one of these loans, you can get out of it by either death, bankruptcy, or disappearing,” he says. “They’re horrific; they’re debt traps.”

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Predatory Lending and Unfair Debt Collection

Humphreys and his law partner, Luke Wallace, work cases involving unfair debt collection, identity theft, car-dealing fraud, predatory loans, and predatory mortgage servicing. While Oklahoma state law doesn’t have any direct protection for consumers from payday loans, the lawyers’ arguments usually deal in the Oklahoma Consumer Protection Act, fraud, or even invasion of privacy.

“One lady in one town worked at city hall, and there’s only 30 employees,” Humphreys says. “This small-dollar lender called every extension and left a message about her loan. They got away with it, but that’s harassment, abusive.”

Taking Advantage of Consumers

Wallace notes that some payday shops claim to be financial advisors, but a legitimate bank or credit union wouldn’t lend you money unless it believed you could pay it back.

In fact, in 2017, the Consumer Financial Protection Bureau (CFPB) finalized a rule that lenders must determine whether a consumer can repay a loan before lending the money.

“The entire system is set up to intimidate the less-sophisticated,” adds Humphreys. “They’ll sit you down at a workstation. They’ve got a uniform and a computer system. They seem to have a lot of power over you, and they’ll tell you what you need to do and how to get out of it. Some of them will even take a security interest in the family bible or a child’s treasured musical instrument, then threaten, ‘We’re going to take your bible if you don’t pay.’”

Before Taking Out a Payday Loan, Assess Your Financial Situation and Have a Payment Plan

Though both Humphreys and Wallace advise avoiding payday loans at all costs, they know they seem unavoidable for some living for their next paycheck or cash advance.

“The idea that it’s not going to happen is not real. People are going to take out those loans,” Wallace says. “But before they do, they need to have a path to get out — because their business model is to trap you, suck everything out of you until the last thing you can do is file bankruptcy or die. So go in there with your guard up, and have a plan to pay it off as soon as possible so you don’t have to renew the loan.”

To that effect, if you or someone you know has taken out a payday loan and been unfairly taken advantage of by a wrongdoing lender, reach out to a qualified, experienced attorney.