High-cost lenders exploit laws tipped in their favor to sue tens of thousands of Americans every year. The result: A $1,000 loan grows to $40,000.
Series: Debt Inc.
Five years ago, Naya Burks of St. Louis borrowed $1,000 from AmeriCash Loans. The money came at a steep price: She had to pay back $1,737 over six months.
“I really needed the cash, and that was the only thing that I could think of doing at the time,” she said. The decision has hung over her life ever since.
A single mother who works unpredictable hours at a chiropractor’s office, she made payments for a couple of months, then she defaulted.
So AmeriCash sued her, a step that high-cost lenders – makers of payday, auto-title and installment loans – take against their customers tens of thousands of times each year. In just Missouri and Oklahoma, which have court databases that allow statewide searches, such lenders file more than 29,000 suits annually, according to a ProPublica analysis.
ProPublica’s examination shows that the court system is often tipped in lenders’ favor, making lawsuits profitable for them while often dramatically increasing the cost of loans for borrowers.
High-cost loans already come with annual interest rates ranging from about 30 percent to 400 percent or more. In some states, if a suit results in a judgment – the typical outcome – the debt can then continue to accrue at a high interest rate. In Missouri, there are no limits on such rates.
Many states also allow lenders to charge borrowers for the cost of suing them, adding legal fees on top of the principal and interest they owe. One major lender routinely charges legal fees equal to one-third of the debt, even though it uses an in-house lawyer and such cases usually consist of filing routine paperwork. Borrowers, meanwhile, are rarely represented by an attorney. (more…)