A payday loan is a short term loan that has repayment terms that run from payday to payday. Borrowers are expected by the lenders to either pay the loan in full on its due date or to merely pay the interest payment and then refinance the loan until his or her next payday. Most borrowers can only afford to pay the interest so they are forced to renew the loan until their next payday. Some payday lenders target individuals who are unable to get a traditional loan from commercial banks and/or other reputable lending institutions. These lenders in turn exploit borrowers by charging them very high interest rates on money that they themselves have borrowed at a low interest rate. This is a very unfair and unethical practice because it creates a hardship for consumers who pay back large sums of money on the small amounts of money that was borrowed.
This practice has created a proverbial war between the federal government and payday lenders. The federal government has taken steps to eradicate the practice of payday lenders, but the lenders have started to fight back by presenting cases within the courts. One example of this occurred when the largest payday lender in the United States, The Community Financial Services Association of America, initiated a lawsuit against The Federal Deposit Insurance Corporation, arguing that The Federal Deposit Insurance Corporation was attempting to pressure financial institutions to break bonds with lenders. Other payday lenders have argued within the courts that they provide valuable services to clients by providing short term loans to small businesses that need to provide for unexpected expenses within the workplace and that these small businesses would be forced to close their doors without them.
Federal consumer protection agencies suggest that payday lenders take advantage of consumers by encouraging them to take out a payday loan and charging outrageous interest rates that put the borrower in a situation where he or she cannot afford to pay the debt back.. Federal consumer protection agencies explain that banks increase their risks when they lend money to payday lenders. A federal campaign known as “Operation Choke Point” was conducted by the U.S. Department of Justice to pressure financial institutions to end business relationships with payday lenders forcing them to obtain funding from other organizations.
Unfortunately, there are cases of payday loan brokers who debited money from the bank accounts of their borrowers without the borrower’s. In addition, there have been cases where brokers have shared a consumer’s private bank information with other brokers and firms with the intent of posing a levy on the consumer. The worst part of all of this is this practice has in the past had the support of The Financial Ombudsman Service in the UK. Consumers have complained to NatWest regarding this practice, but they are limited in the assistance that they can provide due to the consumer willingly submitting their personal financial information to the brokers.
NatWest has taken steps to warn customers against using payday loan services by advising them to read through all the terms and conditions provided by the agents before accepting the loan as well as creating a blacklist of brokers performing aforementioned unethical activities. NatWest has also encouraged financial institutions to protect their customers by taking preventative measures to guard their accounts because customers should not be left to fend for themselves while banks benefit from them. It is my opinion that the world should take a stance against payday lenders and brokers who exploit their consumers. I further believe that banks should take measures to protect their consumers from unsafe financial transactions.