Beware of the Bottom Feeders!

With record high unemployment, compounded with foreclosures and bankruptcies, there is no doubt that we are living in desperate times. But the old adage: “desperate times calls for desperate measures” seems to be getting people in trouble with their money lately.

I have spoken to a dozen people in the last week who have all said the same thing to me: "I have never been in this position before." Each of them have been unemployed for several months, their unemployment is about to run out, they are living on their last dime, and they are trying to figure out a way to save their car, house and marriage.

They are in a desperate situation and are beginning to turn to what we at The Sacks Group consider the bottom feeders of the financial industry.

You know the companies that I mean. We pass several of them every single day but dare not mention them. The payday and title loan franchises. In our circle of friends, we may even believe that they "serve their place in our society" to help the less fortunate among us. But if this is the place you think you need to turn when you are feeling desperate – please beware!

These title loan establishments and paycheck loan places are popping up all over the place lately. They are in almost every strip center -- right next to the nail salons. They represent where our society and our economy has landed – in an unregulated, desperate place where people "hoc" their car title or paycheck for enough money to make it through the end of the month.

These places charge astronomical interest rates. A recent article in the St. Louis Post-Dispatch shared the plight a St. Louis woman, aged 65, who was broke, and the rent was due. After deciding a car-title loan was her only option, she borrowed $800. (see "Loan wording circumvents law" in the Aug. 1, 2010, issue)

She's paid back close to four times that much, but she hasn't reduced the loan's principal. Although she stopped making payments — "I've paid enough already," she insisted — she fears the lender will seize her car.

Lenders like the one that she used skirt around the laws and regulations to avoid the restrictions placed upon title loan establishments. Instead these businesses utilize the "less restrictive" rules of consumer finance. These rules allow them to roll these loans over and over again to place individuals into a vicious cycle that never ends.

If life happens, and you feel that you have no other place to turn, make sure that you understand the contract in full. Ask lots of questions. In fact, since there's so much competition in the business, shop around. Don't be embarrassed ... whatever your situation is they've probably seen worse.

If you find yourself in a place where you have never been before, beware of the bottom feeders and know the rules (or lack of them) under which they play.