Consumer rights advocates have been trying to curb the high cost of Payday loan fees geared at the working class, for several years now. In Texas nearly 10% of all residents use these services to take out cash advances against their incoming paychecks. However, the quick loans often come with larges fees. There are several relief agencies reporting that these loans are causing many people to seek their help.
There have been recent developments that may cause a change in the way these companies are allowed to do business. There have been a few changes enacted; these include new licensing standards and a toll free help line number direct to the Commissioner of Consumer Credit. Also, there will be new data requirements that must show how often loans are renewed.
This new way of doing business will revolutionize how the fine print is utilized on these contracts. It has been indicating that approximately 4 out of 10 people that use a payday loan or cash advance have been renewing it at least half a dozen times. The typical interest rate on a payday loan is 600 percent, and when compared to a credit card (15%), personal loans (27%) and pawn shop loans (175%) it is outrageous.
This new form is geared to make you think: Will I really be able to pay off this loan in full in less than 2 weeks, and if I’m late on a payment will the additional fees and interest send me to the poor house?
Advocates for consumer rights have been pushing for reform in this industry for several years now, including interest fee caps and a way to control their “predatory” lending practices that have made these payday loan businesses infamous. There are people that feel the new regulations are not effective; however, several others feel the new regulations are the necessary first steps.
There are 17 states that currently monitor and enforce limit fees and the astronomical interest rates on these payday loan establishments. The Consumer Financial Protection Bureau in Washington is now moving forward with inquires and investigations into the practices of these companies.
Just last week, President Obama has named Richard Corday to be that agency’s first director. It appears Mr. Corday is going to start taking action to help consumers that have been suffering with little and in some states no regulations to protect consumers.
Payday lenders have been making a name for themselves nationally by using rollovers to quadruple their fees and by taking advantage of customers that can never pay them off without filing for bankruptcy. The demand for these types of loans are high due to our current economic situation, there are nearly 20 million US households that use payday loans and pay billions of dollars in fees annually.
Corday hasn’t publicly released how he will go about dealing with the payday lenders and exactly what kind of restrictions and changes he plans to impose. So the big question remains, will the intervening federal government set guidelines, limit or eliminate rollovers or even possibly requiring that some of each payment must go to reduce the principal. With the power to institute new regulations it has a good chance of being able to do a better job of protecting consumers than has been done in the past.