When cash flow is tight, we may be tempted to push our credit limits up a bit higher or open new lines of credit all together. New York state benefits from certain consumer protections, but sometimes, nefarious "lenders" slip through the cracks, looking to prey on the vulnerable. With digital media making it very easy to seem like a legitimate company with a long history and all the "right" certifications, even the most savvy can fall victim to a scam. In fact, with so much of our financial life going virtual (with online banking, online buying, even online lending*) it's easier than ever to pull one over your eyes.
But, don't worry. There are very clear warning signs that you can keep in mind when shopping around for loans, and we hope they'll help you.
#1. There's pressure to sign immediately - and you feel it
Everything is going well so far, it all seems above board. But, you're not ready to sign just yet. You want to sleep on it. Instead of a very reasonable response along the lines of "take your time", you get something different, and that different makes you feel uncomfortable. It's beyond simple marketing "urgency".
If the predatory lender gets a sniff that you're in a desperate or near-desperate situation, they'll know you won't want to go shopping around because more inquiries to your credit can potentially lower your score. The last thing we want is a lower credit rating, especially if tight finances are on the horizon. They know this, and they capitalize on it. They put the pressure on. Even if they initially agree to let you take a day or two to think about it, they shouldn't then start hounding you (or, hound you at any point). On the flip side of that, if the lender isn't interested in your credit rating at all, take that as another sign to get out.
Never accept terms and conditions you're not comfortable with.
#2. The lender wants fees upfront
We all hate a bait-and-switch, but asking for upfront loan processing fees is downright illegal. Everything in the terms and conditions of your loan agreement should be transparent and easy to understand. Nothing should be convoluted and anything that appears to be should be explained clearly to you.
The total amount you're borrowing, including interest and fees should be disclosed to you upfront and there should never be any cost to "processing" your loan upfront. If they ask for anything before you get a dime of your loan, walk away. Even more dangerous is if they want some form of collateral AND upfront fees. Chances are high they're going to take both and run.
It's completely illegal to ask for fees for loan processing up front in New York.
#3. It's essentially a payday loan
This one is incredibly easy. If the APR is something ridiculous, like 300% (or more), and the turn around on repayment is around 2 weeks (or based on your payday), then stop and don't turn back. Payday loans are illegal and banned in New York State**.
They were initially designed to target those who are caught without cash, charge high fees and make it essentially impossible to break the borrowing cycle, making the consumer dependant on them further. If for some reason you find yourself in this situation - hard stop. And, possibly report them if you feel comfortable doing so (or, talk to us).
To report possible payday lending, the Department of Financial Services in New York State recommends the following:
- 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).
We hope these three major warning signs will help keep you safe the next time you may be in the market to extend your line of credit. If you're looking for guidance with your finances, please call us.