Payday Lender Laws and Legislation
I have come across a terrific article posted by “Collections Recon” in regards to proposed changes to the payday loan industry. The industry is heavily lobbying congress in order to fight being regulated. As they claim their loans are helping customers and revitalizing the economy. Well, I see otherwise, as I have hundreds of clients who get stuck in the payday loan debt trap and have no way to get out. The fees and interest rates charged are for the most part astronomical. I have even seen one internet lender charge upwards of 1075% APR!
Unfortunately when people are desperate due to a job loss, or any time of financial emergency they don’t think clearly enough to realize that these fees and interest that’s charged every two weeks will make their situation even worse. Here is a snippet of what Collections Recon wrote:
Proposed financial reform bills currently in Congress may result in creation of a new agency called CFPA intended to regulate the financial industry to prevent a similar financial meltdown that had resulted in the economic crisis of 2008. However, these bills may be unfairly targeting businesses and hampering their contribution to the economy.
An industry being unfairly regulated is the payday loan industry and direct payday lenders. Some argue that payday advance lenders were one of the few financial institutions that contributed positively to the economy by allowing cash flow to the average working family.
“Payday advance loans are the easiest and fastest loans to obtain especially during these hard times, but of course they come with a price,” said Richard Hwang, Director of Finance at Pay1Day.com. “Our short term loans helped many borrowers get money on demand and avoid unnecessary overdraft fees and other type of late fees.”
Why Payday Loans Are So Expensive
It is true that payday advance loans can be expensive in terms of fees and interest rates but that is because they are considered high risk loans with higher default rates. Many payday advance lenders are reporting millions of dollars will be lost this year because 20 – 40% of borrowers will default on their payments.
Responsible Payday Lenders
Many direct payday lenders have been adopting responsible lending practices while informing and educating their customers about payday loan risks. For example, Pay1Day.com advises customers that payday loans are to be taken for emergencies only and customers with more than two open loans should not and would not be able to qualify for any future loans until the number of loans drop. Many other direct payday lenders have similar rules and policies in place to protect both the customer’s and lender’s best interests. Yet despite all these self regulations, payday lenders could be over regulated by a new financial reform bill governed by the CFPA. This could have a negative impact; stifling payday lending puts a roadblock on consumer financing as well as the economy.
SOURCE Pay1Day.com
In conclusion, I don’t think having payday loan companies regulated is a bad thing. But more importantly is to educate the consumer on the real costs and fees associated with these loans. As well, making a cap on these loans meaning 2 at the most would make perfect sense in my book.
Thank you Stacey, your comment is appreciated!
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