Desperate for small amounts of quick cash, many people take out pay day loans. These are relatively small cash advances of $500 to $2,000 borrowed over the internet or by telephone from lenders who are usually outside of New Jersey, and sometimes even outside the United States, and come due on the borrower's next pay day.

These short term, extremely high interest rate loans are especially attractive to people who want to have “extra cash” during the holidays. I always advise my clients to run away as fast they as they can from the enticement of pay day loans because the initially small amount you may borrow to tide you over “just until your next paycheck” can quickly spiral out of control.

To get the loan, the individual gives the lender a postdated check or an automatic withdrawal authorization from his or her checking account. The borrower pays the lender a fee from the money borrowed, thereby receiving a net sum. Then the trouble begins.

After the borrower's next pay day he or she must repay the loan, either by paying back the whole loan in exchange for the original check, or letting the lender deposit the check, or worse: renewing or rolling over the loan. This is how pay day loans that start out small can get very expensive, very quickly. They can shatter already fragile finances. Here is what the Consumer Financial Protection Bureau (CFPB) said on November 6, 2015:

The cost of the loan (finance charge) may range from $10 to $30 for every $100 borrowed. A typical two-week payday loan with a $15 per $100 fee equates to an annual percentage rate (APR) of almost 400%. By comparison, APRs on credit cards can range from about 12 percent to 30 percent.

Some states prohibit high interest rate loans such as the pay day loans. New Jersey law prohibits interest rates in excess of 30% to individuals, and considers it a serious crime if the interest rate on a loan to an individual exceeds 50% (N.J.S.A 2C:21-19).

The collection calls on some pay day loans threaten the borrower with arrest or other criminal proceedings. This type of collection practice is not legal.

Payday loans, like most other loans, are dischargeable in bankruptcy cases. It is rare that I see a payday lender file a proof of claim in a bankruptcy case or sue for the money.

You can find more information at the CFPB website: http://www.consumerfinance.gov/askcfpb/search/?selected_facets=category_exact:payday-loans

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If you have a payday loan, cannot repay it quickly and see yourself sinking financially, I invite you to contact me to explore solutions.