New Jersey is caught up in a battle of whether to legalize payday loans or not. Most people in New Jersey view cash advance loans as a form of legalized modern day loan sharks.
Hence, payday loan advancements are seen as unethical. They help in encouraging financial indiscipline and in some cases have dipped people into a financial mess. The high interest rates that are charged and the allowing of rollovers on payments creates a cycle of debt, making it difficult for people to come out of it.
Technically, the state of New Jersey has abolished payday loans. However, many traders have found loopholes in which to carry out their money lending practices. This essentially means that commercial cash lending still takes place. Several of the NJ laws prevent lending within the state. These laws include usury laws and small loan interest rate caps.
In NJ, there are no particular laws for payday advance loans. What is in place is the consumer loan act. In essence, New Jersey laws prevent payday advance loan from operating. There are several methods that traders use to get around the payday lending prohibitions. These include operating on the internet. There is no law in NJ that prevents internet lending of money. Internet lending sites usually do a lot of marketing through e-mails and referrals by their clients. The only states which have outlawed internet lending are Massachusetts, Georgia and Maryland Also, payday loan traders refer to their interest rates as fees. This way, they avoid usury laws.
There is no maximum amount of time given to someone who takes a loan. There is also no maximum amount of money that one can borrow. No specifications are given about rollovers or extensions.
In NJ, traders who advance cash to people are allowed to charge any amount of money as interest. This is as long as the borrower and lender agree on the interest rate but most creditors charge a maximum amount of 30%. The criminal statutes and usury also fix these rates at 30%.
As can be expected, since there are laws prohibiting/limiting payday money lending activities in the State of New Jersey, there are no payday money lending outlets in the state. In any case, research shows that payday loans are not excessively profitable as some people may think. After subtracting their operating costs and default payments on loans, the money left over is not usually that much. Losses on loan defaults can amount up to as much as 15% of the total revenue that will be gained by the business.
Some people present fake checks to be used as security, usually resulting in losses for the company.
Most people criticize payday loans as a whole because they see it as a means of taking advantage of people who are already in a difficult position financially. These people usually have no respite but to agree to the high interest rates that are charged by the traders. Other options that can be used include pawnbrokers and credit unions.
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