Payday lending laws have changed over the last few years to protect consumers from payday loan debt. Payday lenders have received much bad press recently. Often, they are called loan sharks. Public hostility against them has increased in recent years, as details of APR as high as 400% receive increasing publicity. Some estimates have put the APR as high as 911%. This has forced federal and state governments to sit up and take note. The result has been a legislation aimed at curbing the APR as well as the operations of payday loan stores.
The Need For Revised Payday Loan Law
Payday loans were originally designed to help salaried individuals who needed cash for an emergency but could not find it elsewhere. The interest rates were high because these quick loans were approved without credit verification. In many cases, online lenders do not even ask for faxed documents in many cases. However, the ease of obtaining cash advances comes at a cost. You are expected to pay almost $15-$20 on every $100 you borrow. This rate increases every time you delay payment. By the end of say, four weeks, the borrower is required to pay more in loan charges than the amount he or she initially borrowed. This leads to a debt trap, and ultimately results in bankruptcy. Many lenders say that little more than one percent of their customers manage to clear the loan on the first payday. While debt consolidation laws are there to help borrowers hopelessly sunk in debt traps, the new payday loan law aims to prevent such situations from occurring in the first place.
Law Review
What changes are in the making now that legislators have finally decided to act? And what is the latest payday lending laws?
Most states have passed laws restricting high interest loans. This means the payday loan interest rate must now be at par with interest rates charged by other lenders such as banks. Many payday loan stores are expected to shut down as a result of this law. Others may switch to prepaid debit card or auto loan business.
The revised laws may not hurt genuine payday lenders much. The laws are expected to protect borrowers from lenders who use illegal methods for increasing their fee. Many lenders, for example, deposit the borrower’s post-dated check before payday and then charge them a large penalty for the bounced check.
The payday loan law also limits the number of cash advances a borrower can receive. If your earlier payday cash advance has not been repaid, you will not be eligible for a second advance. It might seem harsh, but the law protects compulsive borrowers who use these loans as second income rather than one-time assistance.
Besides the rules, there are other regulations to govern lender behavior. Lenders are required to maintain details of each loan for inspection. They also need to apply for licenses when starting a payday loan business. These laws work for lenders as well as consumers. They protect borrowers from greedy “loan sharks” and they protect licensed, honest lenders from negative publicity.
If you are currently saddled with unmanageable debts, it would be a good idea to seek the help and support of a debt consolidation company. Debt consolidation will help you overcome the debt burden without being buried deeper in the debt sinkhole.