GreenPath Debt Solutions Warns Michigan Residents of Payday Loan Penalties

In 2009, GreenPath sees a 53 percent increase in Michigan callers seeking help, in part, due to payday loans

FARMINGTON HILLS, Mich., March 18 /PRNewswire-USNewswire/ -- GreenPath Debt Solutions, a Michigan-based, nationwide, non-profit credit counseling service, recently released statistics related to the needs of its 2009 clients with payday loan issues. In addition, the company is reminding Michigan residents on the dangers of such payday loans, if the loan is not paid back on time.

"In 2009, GreenPath saw a fifty-three percent increase in Michigan residents calling for assistance, partly due to pay day loan trouble, versus the same time in 2008," said Dorothy Guzek, group manager for GreenPath.

Guzek went on to explain that a payday loan is a short term loan that comes due and is payable in full by the next payday. In most cases, the payday lender gives cash in exchange for a personal post dated check that is equal to the cash, plus the fee, which can be substantial.

"The lender cashes the check on the date the check was written for, unless the customer returns with cash or a second predated personal check to reclaim the original check," Guzek explained. "In that case, where a second check is issued, a dangerous cycle can begin with multiple late fees and penalties tacked on to the original loan, often adding up to hundreds of dollars," she warned.

In Michigan, a payday lender can only have one outstanding payday loan per customer for a loan amount of up to $600.  A customer may take out a second loan with a different payday lender. Additionally, a customer can only have two outstanding payday loans at any given time.  

LIMITS ON SERVICE FEES ARE BASED ON AMOUNT OF LOAN

The payday lender may charge up to 15 percent on the first $100; 14 percent on the second $100; 13 percent on the third $100; 12 percent on the fourth $100; and 11 percent on the fifth and sixth $100.  Therefore, the following service fee limits apply:

"The danger is that often times the customer does not have sufficient funds to pay off the loan and needs to 'renew' it by starting the process all over again," Guzek warned.  

Keep in mind that these are fees for the length of the post-dated check.  If the paydays are biweekly and the payday loan is "renewed," the charge above would be doubled by a new transaction.  If the funds are not available and the customer does not pay off the first loan, by obtaining a second loan, the personal check will be cashed, which could cause necessity checks to bounce if the customer does not have overdraft protection.

"While payday loans do seem appealing, the check writer really has to consider the consequences, if they don't have the money to pay back the loan when it comes due," Guzek said. "They need to remember that penalties can quickly add up."

Guzek also listed some important reminders on when one needs credit:

• Shop carefully and compare offers. Look for the credit offer with the lowest APR.
• Consider a small loan from your credit union or small loan company, an advance on pay from your employer, or a loan from family or friends.
• A cash advance on a credit card also may be a possibility, but it may have a higher interest rate than your other sources of funds: find out the terms before you decide.
• Also, a local community-based organization may make small business loans to individuals.
• Make a realistic budget, and figure your monthly and daily expenditures. Avoid unnecessary purchases - even small daily items. Their costs add up. Also, build some savings - even small deposits can help - to avoid borrowing for emergencies, unexpected expenses or other items.

For more information on payday loans, log on to GreenPath's website at www.greenpath.com or call (866) 648-8122.

GreenPath Debt Solutions is a nationwide, non-profit financial organization that assists consumers with credit card debt, housing debt and bankruptcy concerns. Our customized services and attainable solutions have been helping people achieve their financial goals since 1961. Headquartered in Farmington Hills, Michigan, GreenPath operates 42 full-time branch offices in Michigan, New York, Wisconsin, Illinois, Indiana, Florida and Arizona.  We also deliver licensed services throughout the United States over the Internet and telephone. GreenPath is a member of the National Foundation for Credit Counseling (NFCC).  Our professional counselors are certified by the NFCC, and we are accredited by the Council on Accreditation (COA).  For more information, visit us at www.greenpath.com.

SOURCE GreenPath Debt Solutions