Payday Loan Laws and Possible Legislation

I recently read and  article posted by “Collections Recon”  in regards to possible changes to the payday loan industry. These companies are agressively lobbying congress in order to keep from being regulated. They actually claim that these loans are actually aiding customers and helping to revitalizing the economy. The problem is we have hundreds of clients who have gotten stuck in the payday loan trap and have no way to get out.  The interest rates and fees being charged are extremely high. Our firm has even see one online payday lender charge upwards to 1075% APR! 

Regrettably, when people face desperate times due to a  loss of income, or  financial emergency they don’t think rationally enough to understand that the money that’s being charged every two weeks will actually make their situation even worse.  Here is 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

I do not really think regulating payday loan companies is a terrible thing. But most  importantly is to educate the client’s about the real costs and fees associated with these payday loans. And it would make sense to place cap on these payday loans i.e. (two) 2 at the most would be smart legislation. Do you think they should be regulated? Leave me your comments.