• The debt must be a consumer debt: The debt must have been incurred for personal, household, or family reasons;
• A debt collector must be involved: A debt collector (not the original creditor) collects for another;
• The debtor must be a consumer: Any actual person
• There must be a violation: A violation is anything that is untrue, unfair, disrespectful, or undignified done by the debt collector to the consumer.

I get frequent phone calls from small business owners where the original creditor has given up trying to collect a debt and assigned the debt to a debt collector. Business debt collectors may use tactics that would violate the law if done by a debt collector trying to collect a consumer debt. One client was informed that a federal marshall from the Special Collections Unit of the Federal Bank Fraud Task Force was on their way to his house to arrest him for a non-sufficient check. Another debt collector spoke about the debt to the businessman’s family members.

While these tactics are not governed by the federal Fair Debt Collection Practices Act, the same acts may violate your state laws or common law claims, such as “invasion of privacy”, “harassment”, or “negligent infliction of emotional distress”. The same acts may be a violation of the Unfair Trade Practices Act as adopted by your state. The small business owner suffering from harassment from a debt collector should seek local counsel for advice on how to proceed in order to stop these unfair, disrespectful and undignified acts.

Take, for example, this outrageous offer for unsecured debt offered by a loan company on the Internet.  You can get up to $3,000, but you will pay back this debt with an interest rate of 96%.   It is my understanding that this company sends out mail solicitations for this offer.

If you find yourself considering a loan like this for even a split second, it is time to take a serious look at your household budget and money management practices.  Even lousy credit cards charge less than 30%.

Here’s where the “free market” gets obscene. It has been reported that payday lenders and other high-interest and high-fee services, like check cashing outlets, will make loans to folks on Social Security. Of course normally a payday lender is looking to the next paycheck to cover the loan. In this case, the lender will make the loan if — and it is a big “if” — granny will have her Social Security check deposited to an account they can draw their repayment from.

Now that doesn’t sound so bad, right? They want to be sure they get paid. But the reality is far more complex. The bank they ask you to deposit the benefits into may be in another city or state. That’s not necessarily bad. But what if the bank doesn’t offer the customer checking privileges or an ATM card? How will granny draw her money to live on? Well that’s easy: The neighborhood payday and check-cashing service!

The Birmingham News in Alabama described folks lining up at the lender’s offices each month to get their “allowances” sometimes for years. Although a recipient can change the direct deposit information with Social Security, the least sophisticated consumers — the ones most likely to become entangled with small loan operators and not understand how costly the loan is — are unlikely to be aware of this unless the lender tells them. And you so rarely see thieves telling victims their gun might be unloaded.

Social Security benefits are supposed to be protected from levy — collection — by commercial creditors in essentially every way. Lenders cannot garnish a Social Security check at the source, in the mail, or in the bank. Even in bankruptcy it is protected. (The rules are different for money owed the government, of course.) The idea is that these benefits are so important to keeping the elderly and disabled out of poverty — or at least at a minimal standard of living — that no one should be able to touch any part of the money from beginning to end.

Predatory lenders have found a way — with friendly banks — to help themselves to a share of that money without ever having to go to court and, in the process, take away the last vestige of independence and pride Social Security beneficiaries may have. The thought of elderly men and women standing in line to ask for their allowance should gall anyone.

Here is the information from Social Security about the issue and requesting the public’s input on the problem. They will likely receive some substantive comments with suggestions how they could better protect at-risk beneficiaries.   The payday lending industry will also no doubt chime in to warn that capitalism as we know it will fail if they can’t milk our grandparents like so many Guernsey cows. They need to know addressing this  is important and should not be put on the back-burner.

The FDIC and Federal Reserve have, in the past, discouraged the banking industry from becoming involved with payday lending. Of course not because it’s unsavory — but only because of the risk! But the next step would be for those institutions to take a moment from saving Wall Street to consider protecting the least among us from the sharks.

So why are payday loans so bad?

It’s the interest rate. Typically, these loans will require you to pay $15 - $30 more than you borrow when you pay them back in a week or two. So if you borrow $100 for a week, you’d  pay back $115. That’s not so bad, is it? Well, yes, it is.

Loans are compared based on their Annual Percentage Rate, or APR. This gives you a good rate of comparison for rates with different terms and conditions. Federal and state law require the disclosure of the APR for most consumer loans. What’s the APR on a $100 loan that you pay $115 back in a week? It’s a jaw-dropping 780% APR! Loan shark rates. It makes the default interest rates on credit cards look positively friendly.

But, you say, you still need the money. What can you do? The Federal Trade Commission, which advises against using payday loans, has some suggestions.