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People like Parker are falling through one of the newest trapdoors in the cash-strapped economy—online payday loans. Such loans typically were the province of payday loan storefronts that cater mostly to the working poor and low-middle-income workers, short on cash until payday. Now online loans are spreading to the middle class as a result of rising gasoline and food prices, tightening credit, the subprime mortgage fallout and the ease of home computer access to the Web.
"It's insane. It is growing like wildfire," said Henry Coffey, a Baltimore-based stock analyst who tracks the payday loan industry. One factor in the growth of online loans, which charge as much as 2,000 percent interest, is that they effectively hook borrowers into cycles of debt, often forcing people to take second and third loans to cover ballooning debts.
Once a person receives an online loan it's nearly impossible to shake loose from the lender's tentacles, said Jean Fox, a loan industry expert for the Consumer Federation of America and a critic of the payday loan industry.
When people borrow online they authorize the lender to electronically tap into their checking account, Fox said. Moreover, the borrower usually agrees to allow the lender to draw funds to pay down the loan even if the bank account has been closed or the account doesn't have enough money to make payments.
Originally posted by vor78
That said, anyone who takes out a loan knowing that they're going to be charged such a hideous rate of interest needs to have their head examined.