'You Paid How Much?!': Money Expert Caleb Hammer Stunned After Woman Pays $4,000 on a $500 Loan

Finfluencer Caleb Hammer lost his mind while interviewing a woman who took a $500 (£371) loan at an annual percentage rate of an astronomical 792%. The woman now owes a total of $4,000 (£2,975) to the lender.

The woman's disclosure that she had given the lender access to her payroll triggered a full-scale meltdown during the podcast. Hammer was stunned to learn that the woman's wages were being garnished to recover the outstanding loan.

In a recent episode of the Financial Audit YouTube podcast, Hammer clearly stated that the woman did not have to give the lender access to her payroll because it is not the government.

Nearly banging his head on the desk, Hammer asked the woman why she had given the lender access to her payroll, to which she said she thought it was a prerequisite for the loan.

First off, Hammer exclaimed that this kind of debt should be made illegal. Many people who expressed shock at the clip drew parallels with payday loans, which are short-term, high-interest, unsecured debts that provide quick cash to people between paycheques.

These loans are generally paid back with the borrower's next salary but carry high rates and fees due to their short terms and high-risk nature for the lender. The high fees and rates often make it difficult for borrowers to clear the principal outstanding, which sometimes compels them to take out more loans or roll over the existing one, trapping them in an unending debt cycle.

Meanwhile, garnishment is typically a legal mechanism for creditors to collect unpaid debts from defaulters through their employers. This is done by withholding earnings or through direct access to bank funds.

Creditors to whom you owe money, like credit card companies or lenders, can seek a court order to garnish your wages if you've defaulted on payments. However, the woman on Hammer's podcast already offered access to her payroll while taking the loan, which probably helped the lender bypass the hassles and costs of securing a court order to garnish wages.

Creditors of these exorbitantly high-rate loans typically target vulnerable individuals with limited financial options who need quick cash. These borrowers are also likely to have poor credit scores, which makes them ineligible for traditional loans.

Hammer understood that the woman's situation could be attributed to a lack of financial awareness. According to the latest survey conducted by the National Financial Educators Council, Americans lost over $240 billion (£178.5 billion) due to a lack of financial literacy in 2024.

While the average financial illiteracy cost has come down since 2022, 16.9% of the 1,200 survey respondents lost up to $2,500 (£1,859) last year due to financial mismanagement.

In the woman's case, it might help her to report the lender to the Consumer Financial Protection Bureau for its predatory lending practices. She can also seek legal counsel to determine if the loan violates the state's usury laws. If found guilty, the court can order the lender to refund the excessive interest collected or void the debt entirely.

While most US states have a legal cap on loan rates, some states, such as South Dakota and Delaware, have no such limits, which attracts many financial institutions to incorporate in these states to avoid usury laws.