BUFFALO, N.Y. (WIVB) - For those in a financial jam, a payday loan may sound like an easy way to get some cash. But while the money is easy to get, paying the loan back can turn into a nightmare.
They are called "payday loans" because the lender collects from the loanee, generally on payday. And the interest rates are sky high.
"Sally" was down on her luck and received a flyer in the mail, touting easy money through a payday loan. She borrowed $500 - and it was all downhill from there.
"Sometime they call me 10- or 15-times a day," Sally said. "I don't recall exactly the interest rate, but it was three digits. Like 600- or 700-percent, something like that."
At the time, Sally believed she was stuck because she agreed to allow the lender to directly withdraw the money from her bank account - about $200 every two weeks - which only covered the cost of the loan, and not the actual loan itself.
"I was getting more than half of my paycheck taken out every other week, which put me behind even more in bills, which caused me to take out another payday loan, and another one," Sally said.
Then Sally learned payday loans are illegal in the State of New York - even though they are all over the internet - and stopped paying.
Matthew Parham of the WNY Law Center said, "Because that loan never should have been made to begin with. It's not enforceable. No one can ever do anything to you in court about it. You're not going to be arrested, like they always tell you you are, for not paying it."
Sally did receive threatening collection calls. But Parham says collection activities on payday loans are unenforceable, too. So why is it so many New Yorkers, just like Sally, fall prey to payday loans?
Assistant Attorney General James Morrissey said, "A crucial part for the payday loan company is that you give the routing numbers of your bank account so they can electronically reach into that bank account and take the money out. So in that context, it doesn't matter where they are. They can collect from anyplace."
If debt collectors threaten to take you to court for refusing to pay back a payday loan, attorneys say they are lying - if it truly is a payday loan. You can report the offending callers to the phone company.
