Payday Loans

8 Things You Must Know About Payday Loan Providers

In the last few years, payday loan providers have gained rapid popularity, but you cannot also ignore the very fact that thousands of consumers every year are getting trapped into predatory payday lending programs and are even getting bankrupt. Therefore, if you are considering borrowing from them, there are plenty of things that you need to take into your careful consideration. It is not just about the extremely high rate of interest that these lenders charge; the bigger problem is that not all payday lenders available out there in the market are legitimate ones. In order to promote responsible lending in the payday loan industry and to regulate cash advance practices, the US laws have introduced certain sets of consumer protection guidelines, which the lenders must follow religiously. It is legally mandatory for all providers of payday cash advances to comply with the federal and state laws and regulations. Following is a brief rundown on the eight most important things regarding those laws and regulations that you must be well aware of.

Association With Other Financial Institutions

There are many payday loan providers that promote and service payday cash advances by building an association with a federally guaranteed financial institution. This is a very common practice, but is treated as legal only if the financial organization the cash advance lender has business relationship with meets the following criteria.

• The institution must meet the guidelines and regulations imposed by the state where their physical office is located at.
• They must run their business in conformity to the CFSA’s (Community Financial Services Association of America) best practices.
• The institution must not allow its member cash advance lender to purchase a very large quantity of payday loans. The federal and state regulators have imposed a maximum limit regarding this, which must be respected.
• The institution must also take care of the maximum number of rollovers on the loans issued by them; they must not cross the legal limit set by the state laws, where the borrower resides.
• The institution is also legally obligated to finance and authorize each payday loan that the payday loan providers associated with them are issuing to borrowers.
• The institution must also meet the relevant state disclosure requirements.
• Last, but not the least, they must also establish their own credit-based factors.

No Right To Prosecute The Borrowers

It is also very important for you to keep in mind that payday loan providers have no right to prosecute those borrowers on their own when they fail to make the repayment in time. They must refrain from activities like forcing wage garnishment, bringing criminal proceedings or threatening the borrowers even if their checking bank accounts are delinquent or the post-dated check offered by them as security against the loan gets dishonored. In the United States of America, inability to repay a loan is not considered as a criminal offence. The borrowers cannot be sent to jail for this. But yes, payday lenders can file civil lawsuits against such clients. Some possible consequences in such cases include a court-ordered wage garnishment, liquidation of asset, or sometimes, even bankruptcy (in extreme situations). But, lenders are strictly prohibited from taking any such action on their own. They must follow the guidelines explained in the Fair Debt Collection Practices Act (FDCPA). The borrowers have the ;legal right not to be harassed in any manner just because they are going through financial hardship and are unable to make the repayment.

Right To Follow Legitimate Collection Practices

Though payday loan providers are prohibited from harassing or threatening consumers, they have the right to follow certain collection practices that are fair and legal. For example, they can give you a phone call between 8 am to 8 pm and ask about the payments for the loan. But, if you request them in writing that you are trying your best to arrange fund to repay the loan and that you do not want them to call you at home and/or at workplace, they must honor your request. If the lenders or their collection agents still continue to give you phone calls, you can file complaint against them with your state authority or directly with the Community Financial Services Association of America (CFSA). In cases, where lenders are having difficulty in locating you, they have the right to contact third parties to find information about your whereabouts, but they cannot disclose your debt information to third parties unnecessarily. In short, lenders can follow all sorts of legitimate collection practices that are defined under the FDCPA Act.

Legal Restrictions On Rollovers

Most states have strictly prohibited payday loan providers from renewing the loan accounts where full payments are not made in time. Though a few states allow such practices, the lenders are still restricted to keep the number of rollovers to four or the state minimum, whichever is less.

Educating Consumers

The US laws also make it legally mandatory for all payday lenders to educate consumers about when and why they should opt for fast payday loan services. For example, they must explain on their websites that these short-term loans do not make the right financial decision if there is a complex financial difficulty to resolve. When you need a large sum of money, you are strongly recommended to consider conventional options. The lenders must provide this information in good detail, not just on their websites, but also on other promotional materials, such as online/ television/ radio/ print advertising, in-store marketing publications, direct mail and others.

Truthful Advertising

It is illegal for payday loan providers to mislead consumers through false advertising. They must not make misleading, deceptive or false statements (such as about the cost of loan and other terms) when promoting their services through any means. Their advertising practices must promote only responsible use of payday lending programs.

Compliance With All Relevant Laws

Payday lenders must conform to all relevant laws and regulations, such as usury laws of the state, provisions of state deceptive practices, the Fair Debt Collection Practices Act, the Electronic Funds Transfer Act, the Federal Trade Commission Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act and Truth in Lending Act.

Full Disclosure

It is also legally mandatory for all payday loan providers to disclose all the information regarding their short-term cash advance programs clearly in the loan contract. The laws require them to include a disclosure box in the contract, where things should be made clear. For example, many lenders try to attract consumers by claiming that they charge a very low rate of interest on their loans, but they hide the fact that they charge a hefty amount of additional finance charges. All such hidden costs must be explained clearly in the disclosure box. Therefore, you are also recommended to carefully study the disclosure box in the loan contract before you sign it.

Overall, the more informed you are about the laws and regulations regarding payday loan imposed by both federal and state government, the better you will be able to protect yourself against illegitimate payday loan providers.


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Posted in Payday Loan Companies | 1 Comment »

One Response to “8 Things You Must Know About Payday Loan Providers”

  1. Scott says:

    Pay day lending has become a well established business now. But with all the facts, it is also true that so any people become bankrupt due to these pay day lending programs. If you want to get a pay day loan, you have to be very careful regarding the gentility of the company, there are so many companies present in the market but the selection of the company must be done with some extra care. Once you decide to take pay day loan from a particular company, you must have some clear view of the background of the company. The company should follow all the terms and conditions of the particular state where the company is situated. The company should have a physical address, and never go with the internet based companies as such companies are very difficult to locate. The company should run their business according to the state authorities they have to follow the guide lines of the authorities regarding the maximum limit of the loan, maximum number of roll-overs which can be allowed these all should be taken under careful consideration before signing the contract. The most important thing is that if you are unable to repay the loan in time, no body can file any criminal case against you.

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