Texas imposes fewer restrictions on companies offering payday loans or paycheck advances. As reported by CNBC, payday loans in the Lone Star State carry the highest interest rates in the nation and may reach more than 600% for some borrowers.
As noted by Bankrate.com, individuals may apply for short-term unsecured payday loans of less than $500. By promising to repay a loan from their next paycheck, individuals with substandard credit who have jobs gain quick access to cash.
An unexpected job loss may occur
An economic downturn could change an individual’s circumstances before the next payday. When employees unexpectedly lose their jobs, their final paychecks may need to go toward food and housing. A broken promise to a payday lender, however, may create a serious financial or legal trap.
Hidden fees and high-interest rates may apply
By providing payday lenders with a post-dated check, borrowers receive money and lenders deposit the check on the date noted. Without enough funds in the account, however, a check may bounce unless a borrower has overdraft protection. The bank may charge an insufficient funds fee, and the payday lender may charge a returned check fee. Borrowers may also pay higher interest rates when repaying the loan past the date promised.
Collection efforts may include threats of arrest
Payday loan lenders typically send unpaid debts to aggressive collection agents. According to the Consumer Financial Protection Bureau, individuals cannot face arrest for defaulting on a payday loan. Failure to respond to a court notice, however, may lead to serious consequences, such as a judge finding a borrower in contempt of court.
A bankruptcy petition provides debtors with an automatic stay, which prohibits collectors from taking any further action. A successful filing may result in a discharge of most consumer debts including payday loans.