Payday Loan Laws And How They Effect You

by : Tim Staines

Numerous individuals have suffered serious financial consequences as a result of obtaining payday loans. As a result, the United States Senate committee has appointed a special panel to investigate the situation. In addition, many states are also evaluating complaints lodged by consumers. Overall, there is an increasing trend towards tighter regulations. Before applying for a payday loan, it would be helpful to know the current legislative situation in your state in regard to this type of lender.

As you may be aware, a payday loan is a cash advance that uses your next paycheck as a form of collateral. In many cases, the term of these loans ranges from one week to two weeks, which would correspond with your payday. Typically, you will have to pay an application fee, which may be taken out of your loan amount. Unfortunately, these fees can be very high, and help to increase the burden of accrued penalties and interest.

In many cases, people cannot afford to pay off the loan plus interest once their paycheck comes in. As a result, they must also pay nsf charges to the lender as well as the bank. In addition to these charges, late payment fees and penalties can quickly add up to hundreds of dollars. Unfortunately, few individuals realize that there is a 60% cap on interest that a lender can charge in one year.

Because many payday loan vendors actually charge well over 140% per year, some states have outlawed payday loans altogether. As an example, payday loan vendors cannot operate or solicit in North Carolina as the result of a judgment passed on March 1 2006. In addition, on any existing payday loans, lenders must accept the principal amount as payment in full. The judgment also stipulates that payday loan vendors that operated in North Carolina must contribute $700,000 to a non-profit organization dedicated to debt relief.

On the other side of it, payday loan companies feel they have a right to charge high interest rates and penalties. Among other things, they cite the fact that a substantial number of loans never get repaid. That said, one would logically expect this type of situation to occur when interest rates and associated fees are beyond affordable limits. One might even go so far as to say that payday loan vendors create their own problems.

Proponents of the payday loan industry have also sought to defend themselves in the face of an onslaught of legitimate complaints against them. As an example, in his report titled "Defining and Detecting Predatory Lending" Donald. P. Morgan defines predatory lending as a "welfare reducing provision of credit". Perhaps when such sentiments exist within an industry, it is no wonder that governing bodies are considering banning payday loans altogether, and perhaps even awarding settlements to people that were the victims of these lenders.

Today, the activities of payday loan lenders remains under close scrutiny. Without a question, as regulations continue to tighten, payday loans will become more difficult to obtain. That said, perhaps that is the only answer to ensuring that individuals do not take on more debt than they can afford to manage.