Payday Lenders Moving Courts To Issue Arrest Warrants Against Borrowers
19 Feb 2020
Approx Reading time: 3 minutes
- A recent study has highlighted that predatory lenders in Utah are using the state’s legal system to force insolvent customers to repay outstanding debt balances.
- In some cases, lenders are pushing for arrest warrants to be issued against some borrowers, in many cases for debt amounts that are under $1,000.
- These lenders charge three-digit interest rates and target customers who have limited financing options due to low income or bad credit history.
According to a study
recently published by the Consumer Federation of America, payday lenders in the country are now moving the legal system against thousands of insolvent customers and, in many cases, obtaining warrants of arrest against them as well. The study focused on the state of Utah and discovered that around 30% of all such cases filed by payday lenders ended with the issuance of bench warrants against borrowers for their arrest, many for contempt of court. Researchers of the study deduced from their findings that the state’s legal system is being used by expensive lenders as a publicly-funded debt collection system. It should be noted that cases filed by such expensive lenders account for almost 70% of all cases of similar nature. According to details presented in the study, such lenders are being very aggressive when it came to suing their customers, with lenders suing customers with median outstanding debt balances of under $1,000. This is three times lower than the median amount claimed in other lawsuits filed in the small claims courts of Utah. The study offers a stark contrast to the established image of small claims courts, which have been popularized in the media as friendly centers where small family disputes are settled. Usually, as can be seen in the court of ‘Judge Judy’, rulings are made by settling disputes over small amounts, however, the study points out, she does not hand out arrest warrants against those struggling to make repayments on loans that are charging over 400% in interest. Although this study analyzes the situation in Utah, it also highlights that these findings have implications for the rest of the country as well. According to the CFA, Utah is popular among such lenders, and it may soon try to push for a Utah-like regulatory environment in the rest of the country as well. Christopher Peterson
, who is the Financial Services Director at the CFA, policymakers need to remain cautious and protect consumers by disallowing such lenders from misusing the legal system, which is likely if these lenders are allowed to operate without adequate oversight and laws that protect consumers. To ensure expensive payday lenders are kept in check, Peterson has recommended that Congress needs to take action by adopting the Veterans and Consumers Fair Credit Act. Adoption of the act would effectively enforce a national limit on the usury amount that can be charged by lenders, protecting customers against predatory lenders.