As Banks Trap Consumers in Cycle of Advance Loans, Nashville Bankruptcy May Offer Relief
Most of us would rather eat glass than knowingly sign up for a credit card with a 365% APR. Yet consumers are increasingly being tricked into loans with exactly that kind of sky-high interest rate - by their own banks, according to CNN Money.
Called advance loans, these short-term loans provide quick cash for bank customers with direct deposit checking accounts.
The arrangement is strikingly similar to that of payday loans, which are the cause for a large number of Tennessee bankruptcy filings each year.
Both payday and advance loans allow struggling consumers to pay the bills between paychecks. But because the balances and fees are due in full just two weeks to a month after the loan is established, it's common for borrowers to be unable to pay the money back.
As a result, many recipients of payday and advance loans are forced to take out an additional loan to pay off the first.
What makes the latest advance loans especially dangerous is that banks can debit the amount due directly from a person's checking account as soon as a recurring deposit - such as a paycheck - a is made.
Instead of just being unable to pay back the loan, now borrowers are also unable to pay any important bills, from the mortgage to the phone bill, because they never received their salary.
The loans have consumer protection groups crying foul. With big banks pushing predatory short-term loans, bank accounts are morphing from an important savings tool into an unsafe place for money. As a result, consumers may be encouraged to close bank accounts - and perhaps rely solely on credit cards and payday loans.
Short-term loans can result in the same vicious debt trap as credit cards, but because interest rates are much higher, consumers get into more trouble more quickly.
According to CNN Money, the average advance loan is for 10 days and charges $10 per $100 - but because the average consumer remains indebted to the bank for 175 days, the annual percentage rate can end up at more than 300 percent!
It's hard to turn down quick cash when you're living paycheck to paycheck, even when you know that the terms don't make sense. For many, bankruptcy is the only way to break the cycle.
If you're handing over every paycheck to the bank, you're essentially working for them. But as a customer, your bank should be working for you.
By allowing you to make manageable payments on unsecured debts - or discharge the debts entirely - filing for Tennessee bankruptcy can give you the foothold you need to get your finances, and your life, back on track.
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'End Bank Payday Lending Now,' Consumer Groups Urge, by Blake Ellis, CNNMoney