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There has been a lot of coverage in the news lately about payday loans and check cashing services. They routinely take advantage of people in hard financial times, charging them interest and fees up to 300% per year. Because of the predatory nature of these services, there has been a strong push for legal oversite.

But these types of predatory practices are much more widespread than one might think. Consider credit cards. The way a credit card company makes a lot of money is when someone can not afford to pay off what they charge and must maintain a balance for an extended period.

Large car manufacturers are also in the game.  Consider someone who has purchased a car on a low interest, three year loan.  Along with interest payments, they have significantly paid down their principle. Now they receive a letter in the mail telling them that they can upgrade to a new car for no downpayment and no increase in monthly payments. To many people this is very appealing. However, cleverly disguised to the financially inexperienced is the fact that they now have a large amount of cash tied up in the car’s principle. The car manufacturer is extremely eager to take the consumer’s saved up money.

Of course, this makes good business sense. The shady part is that the manufacturer never discloses the fact that the principle will be increased again after the trade-in. In fact, they represent the deal much as if the consumer has won a prize, appealing to their emotions and counting on their financial inexperience to lead them into the trap.

What are your thoughts on this? Should these practices be allowed? Please share your comments below.

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