A cash advance loan is a small, short-term, high-interest loan that is offered in anticipation of the receipt of a future lump sum of cash or payment. Although a cash advance may be made in anticipation of future legal winnings, pensions, inheritances, insurance awards, alimony or real estate proceeds, the most common cash advance loans are Payday Loans and Tax Refund Anticipation Loans.
Payday loans are illegal in New York State
It is a violation of New York State law to make payday loans in-person, by telephone, or over the Internet. It is also illegal for a debt collector to collect, or attempt to collect, on a payday loan in New York State.
What is a Payday Loan?
A payday loan is a relatively small, high-cost loan, typically due in two weeks and made with a borrower’s post-dated check or access to the borrower’s bank account as collateral.
Payday lending is illegal in New York for a number of reasons:
- Payday loans are designed to trap borrowers in debt. Due to the short term, most borrowers cannot afford to both repay the loan and pay their other important expenses.
- If the loan cannot be paid back in full at the end of the term, it has to be renewed, extended, or another loan taken out to cover the first loan. Fees are charged for each transaction.
- The annual percentage rates on payday loans are extremely high, typically around 400% or higher.
- Lenders ask that borrowers agree to pre-authorized electronic withdrawals from a bank account, then make withdrawals that do not cover the full payment or that cover interest while leaving principal untouched.
- If the lender deposits a repayment check and there are insufficient funds in the borrower’s account,the borrower is hit with even more fees for insufficient funds.
New Yorkers should steer clear of payday loans
If you are struggling to pay your bill:
- Ask your creditors for more time. Find out what they charge for late payments, finance charges or interest rates since it may be lower than what you might end up paying for a payday loan.
- Work with a community development credit union or a non-profit financial cooperative, which may provide affordable small-dollar loans to eligible members.
- Ask for a salary advance from your employer, or borrow from family or friends.
- Consult social service agencies, they may have programs to help with food, housing and home heating costs.
To File a Complaint
- Notify the Department of Financial Services at (800) 342-3736 if you believe payday loans are being made in New York or to New York residents, or if a debt collector is seeking to collect on a payday loan in New York.
- File a complaint with the CFPB at www.consumerfinance.gov or by calling (855) 411-2372.
- File a complaint with the FTC at www.ftc.gov or call them toll-free at 877-FTC-HELP (877-382-4357).
Tax Refund Anticipation Loan
Some tax return preparers offer what they may call ‘instant’, ‘express’ or ‘fast money’ refunds. These refunds are actually loans borrowed against the amount of your anticipated refund. These loans often include extremely high interest rates and high fees. They must be repaid even if you don’t get your refund or it is smaller than anticipated. To avoid the temptation of getting a Refund Anticipation Loan:
- File your tax return electronically and have your refund deposited directly into your bank account. This will speed up your refund. Some refunds will be deposited in as few as 10 days.
- If you don’t have a bank account, open one. All banks in New York State are required to offer low-cost Basic Banking Accounts.
- Go to a Volunteer Income Tax Assistance (VITA) site at your local library or community center. The IRS Volunteer Income Tax Assistance (VITA) and the Tax Counseling for the Elderly (TCE) programs offer free tax help for taxpayers who qualify.
- AARP Tax-Aide helps people of low-to-middle income, with special attention to people who are 60 and older, with taxes and refunds. To locate the nearest AARP Tax-Aide site, call 1-888-227-7669.
Advance Fee Loan Scam
These scams involve a company claiming that they can guarantee you a loan if you pay them a processing fee, an application fee or pay for ‘insurance’ on the loan in advance. The company will advertise on the Internet, in the classified section of a newspaper or magazine, or in a locally posted flyer. They will sometimes use a legitimate company’s name or use a variant of a trusted name. They will sometimes ask you to call them at a "900" number, which will result in charges to your phone bill. They will usually ask to be paid via overnight or courier service or by wire, so that they can’t be traced. In order to avoid being taken in by this scam you should be aware that:
- It is against the law for anyone to ask you to pay in advance to receive a loan or credit card.
- A legitimate lender will never guarantee you a loan or a credit card before you apply, especially if you have bad credit, no credit, or a bankruptcy petition on your credit report.
- These scams should not be confused with:
- pre-qualified offers, which mean you are selected to apply and must go through the normal application process.
- pre-approved offers, which require only verbal or written acceptance.
- Don’t ever give out personal information or agree to a loan over the phone or via the Internet.
Government Grant and Loan Scam
This scam, like the advance fee loan scam, uses the internet, phone and newspaper to advertise. A company claims that they can guarantee a grant or loan from the government in exchange for a fee. Victims are instructed to send money to pay for ‘insurance’ on the promised grant or loan. They will usually ask that the money be sent via overnight or courier services or by wire, so that they don’t leave any trace of their identity or location. They then provide the victim with information that is available in any library or can be ordered directly from the government.
Bounce Protection Programs
Traditional overdraft protection services allows you to avoid bouncing checks by linking your checking account to your savings account or to a line of credit or credit card that you have with the bank.
With overdraft payment programs, also called ‘courtesy’ overdraft protection or bounce coverage, the bank pays any checks that you write, debit purchases or ATM withdrawals that are for more money than you have in your account. The decision to make this payment is at the sole discretion of the bank. The bank will charge a fee for each transaction and some banks will also charge a daily fee until the account has a positive balance. Some banks will charge loan fees, sometimes twice in a billing period. In order to avoid the imposition of additional charges, the customer must repay the bank the amount that it covered plus any accumulated fees.
High Cost Home Equity Loans
Home equity is the value of your home minus the money you still owe on the home. You can sometimes borrow money from a lender by using the equity in your home as security on a loan. Home equity lending fraud occurs when someone talks a homeowner into taking out a loan that they don’t need or that is bigger than they need, or has higher interest rates and higher fees and larger monthly payments than they can afford. If the homeowner falls behind on payments, the lender can take the home.
To avoid Home Equity Lending Fraud
- Don’t give out personal information or agree to a loan over the phone or via the Internet.
- Don’t let anyone who may be working on your home, like a contractor, steer you to a particular lender.
- Don’t borrow more than you can afford. Educate yourself. Know what the prevailing interest rates are. Remember that a low monthly payment isn't always a deal. Look at the TOTAL cost of the loan.
- Learn the real value of your home by getting an independent appraisal.
- Don't trust ads promising "No Credit? No Problem!" If it sounds too good to be true, it probably is.
- Get your credit report and your credit score. See if you qualify for better rates than are being offered.
- Never lie about your income, expenses or available cash to get a loan and avoid any broker or lender that encourages you to do so.
- Avoid early repayment penalties and fees of more than 3% of the loan amount (4% for FHA or VA loans).
- Be aware that credit insurance premiums (insurance that a borrower pays a lender) should never be financed into the loan up-front in a lump-sum payment.
- Don’t ever sign a document that has blank spaces or pages in it that the lender promises to fill out later.
- Ignore high-pressure sales tactics. Take your time and read everything thoroughly.
- Be wary of a lender that promises to refinance the loan to a better rate in the future. A predatory lender will let you keep refinancing a bad loan and will charge fees every time.
- Know that even if you have already signed the agreement you have three days to cancel it.
- Take your documents to a housing counselor near you and have them review the documents or refer you to someone who will. To find a counselor near you, visit the Department of Housing & Urban Development online or call (800) 569-4287.
Auto Title Loans
These are small, high-interest loans given using a car as collateral. If you default on the loan, you lose your car.
When you rent furniture or appliances you will often end up paying much more than it would have cost you to buy that furniture all at once. If you miss a payment the company may repossess the items and you will forfeit any payments you may have already made.
Don’t deal with unlicensed lenders.
- Make sure a lender is licensed by the State of New York.
- High interest rate or rate is not disclosed at all.
- Credit insurance is required with the whole premium paid in advance. ...
- There are high pre-payment penalties. ...
- Non-amortizing loans. ...
- The lender uses aggressive sales tactics. ...
- There are high fees associated with the loan.
- Bad credit personal loans. ...
- Bad credit debt consolidation loans. ...
- Payday loans. ...
- Home Equity Line of Credit (HELOC). ...
- Title loans.
Payday loans are one of the most commonly cited examples of predatory lending because they have high fees and short repayment terms.Why would people go to a predatory lender? ›
Predatory lenders typically target minorities, the poor, the elderly and the less educated. They also prey on people who need immediate cash for emergencies such as paying medical bills, making a home repair or car payment. These lenders also target borrowers with credit problems or people who recently lost their jobs.What are the most common predatory loans? ›
- Equity Stripping. The lender makes a loan based upon the equity in your home, whether or not you can make the payments. ...
- Bait-and-switch schemes. ...
- Loan Flipping. ...
- Packing. ...
- Hidden Balloon Payments.
Predatory loans are real loans, but with terms that are hard for borrowers to meet. A few types of loans, most notably payday loans, are predatory by nature. Their high interest rates and short repayment terms make them difficult for anyone to pay back.What is a toxic loan? ›
Toxic debt refers to loans and other types of debt that have a low chance of being repaid with interest. Toxic debt is toxic to the person or institution that lent the money and should be receiving the payments with interest.What are riskier loans called? ›
Key Takeaways. An unsecured loan is supported only by the borrower's creditworthiness, rather than by any collateral, such as property or other assets. Unsecured loans are riskier than secured loans for lenders, so they require higher credit scores for approval.What are the 4 types of loans? ›
Types of secured loans
- Home loan. ...
- Loan against property (LAP) ...
- Loans against insurance policies. ...
- Gold loans. ...
- Loans against mutual funds and shares. ...
- Loans against fixed deposits.
Report your experience to the Federal Trade Commission. It watches out for predatory lending scams and frauds. Call toll-free 1-877-FTC-HELP (382-4357), Write to Federal Trade Commission, CRC-240, Washington, D.C. 20580.
Asset-Based Lending: This practice has another name, equity stripping, where a lender will base a loan on the equity built into your home and purposely set high-interest payments so that you end up in foreclosure, and they get your property.What is a red flag for predatory lending? ›
Predatory lending refers to lenders using unscrupulous actions to encourage or help borrowers take out loans that they cannot reasonably pay. It is common for predatory loans to include high fees and high-interest rates or remove equity from the borrower or give the borrower a loan for a lower credit rating.Which is an example of a predatory loan? ›
Examples of predatory lending could include high late fees, penalty interest rate or even seizure of loan collateral (like repossessing a car). Predatory lending practices can be found at any point in the loan-buying process, from false advertising to high-pressure sales tactics to an unaffordable free structure.How do you protect yourself against predatory loans? ›
- Make sure you can really afford the monthly payments. ...
- Make sure the lender and broker you are dealing with are licensed by the State Banking Department. ...
- Watch out for “hidden” terms, such as prepayments and balloon payments.
Is Predatory Lending a Crime? In theory, yes. If you are enticed and misled into taking out a loan that carries higher fees than your risk profile warrants or that you are unlikely to be able to pay back, you have potentially been the victim of a crime.What is an illegal loan? ›
An unlawful loan is a loan that fails to comply with—or contravenes—any provision of prevailing lending laws. Examples of unlawful loans include loans or credit accounts with excessively high-interest rates or ones that exceed the legal size limits that a lender is permitted to extend.What percentage is a predatory loan? ›
Predatory lending is the practice of overcharging a borrower for rates and fees, average fee should be 1%, these lenders were charging borrowers over 5%. Consumers without challenged credit loans should be underwritten with prime lenders.Who protects against predatory lending? ›
See 15 U.S.C. § 1639(b) (Dodd-Frank Act § 1403). Further authority to prohibit deceptive, unfair or predatory loan terms is given to the Federal Reserve Board, which can regulate all residential mortgages to ensure that terms are in the interest of consumers and the public.What happens if you refuse to pay back a loan? ›
When you stop paying a personal loan, it could result in your account going into default, the balance being sent to collections, legal action against you and a significant drop in your credit score. If money is tight and you're wondering how you'll keep making your personal loan payments, here's what you should know.What is the punishment for not paying back a loan? ›
Punishment for nonpayment of a personal loan can take the form of hefty late payment fees, a drop in your credit score or even a lawsuit from your lender.
- 401(k) Loans. ...
- Payday Loans. ...
- Home Equity Loans for Debt Consolidation. ...
- Title Loans. ...
- Cash Advances. ...
- Personal Loans from Family.
Unsalable Loans shall include bankruptcies which do not meet the definition of Non-Performing Loans (i.e., "current bankruptcies") and Mortgage Loans that as of the Cut-Off Date have legal deficiencies or credit deficiencies which prevent sale to a securitization and which deficiencies remain uncorrected through the ...What can you do if someone takes a loan in your name? ›
Contact your lender, notify them of the fraud. If it's a credit card account, freeze your card immediately. Register an FIR with the police. Follow up with the lender to ensure that the fraudulent transaction (if it appears in the CIR) is removed and the appropriate details are provided to the credit bureau.What are the three types of risk in lending? ›
There are 5 main types of financial risk: market risk, credit risk, liquidity risk, legal risk and operational risk.What are high risk loan products? ›
Some types of high-risk loans may include: Secured loans: These loans require an asset to be held as collateral, such as your home or car. If you default on your loan payments, the lender can take your collateral. Car title loans: With these loans, you'll give the lender your car title to secure funding.What are the main risks of a loan? ›
- The Interest Rate. Just because you qualify for a personal loan doesn't mean you should take it. ...
- Early-Payoff Penalties. ...
- Big Fees Upfront. ...
- Privacy Concerns. ...
- The Insurance Pitch. ...
- Precomputed Interest. ...
- Payday Loans. ...
- Unnecessary Complications.
Standards may differ from lender to lender, but there are four core components — the four C's — that lender will evaluate in determining whether they will make a loan: capacity, capital, collateral and credit.What is the most popular type of loan? ›
1. Home And Mortgage Loans. You get a home or mortgage loan to purchase a house or real estate property. The amount you borrow on a mortgage is based on the appraised value of the home and the amount of money you pay as a down payment.What are the 2 most common types of consumer loans? ›
Lenders offer two types of consumer loans – secured and unsecured – that are based on the amount of risk both parties are willing to take. Secured loans mean the borrower has put up collateral to back the promise that the loan will be repaid. The borrower risks losing that collateral if he/she defaults on the loan.What is an example of predatory? ›
The best-known examples of predation involve carnivorous interactions, in which one animal consumes another. Think of wolves hunting moose, owls hunting mice, or shrews hunting worms and insects.
To be considered an ideal target of a predatory lender, the individual will have minimal cash flow and savings, a large amount of equity in their homes and limited experience with financial services, or even may be on a fixed income.Which of these is a red flag for predatory lending? ›
1. No credit check. If you're trying to get an auto, mortgage or personal loan, and the lender touts “no credit check” as one of the loan benefits, beware. Credible lenders run a credit check to find out your credit score, payment history and how much debt you already owe before loaning you money.What is a toxic lender? ›
Informally known as “toxic lenders” or “dilution funders” because the terms of their financing agreements contain provisions that almost always result in harm to investors and issuers alike, they're considered by many to be the scourge of the penny stock market.What actions can be taken against a predatory lender? ›
If you think you're a victim of predatory lending, consider talking with a lawyer experienced with anti-predatory lending laws and a HUD-approved housing counselor. You can also file a complaint about a predatory lender with the Consumer Financial Protection Bureau or your state Attorney General's office.What is an example of predatory lending? ›
Examples of predatory lending could include high late fees, penalty interest rate or even seizure of loan collateral (like repossessing a car).What is a predatory lending tactic? ›
What is Predatory Lending? Predatory lending practices, broadly defined, are the fraudulent, deceptive, and unfair tactics some people use to dupe us into mortgage loans that we can't afford. Burdened with high mortgage debts, the victims of predatory lending can't spare the money to keep their houses in good repair.