California Way to Regulate Online Payday Lending

One of the possible next steps in California payday loan regulation is the measure to track the customers who apply for payday loans and the lenders they apply to with the aim to ban the latter from accessing customers’ bank accounts.

In accordance with this proposal lenders will have to ask for paper checks instead of account access from borrowers to secure the loan. This is much like going back to in-store lending and deferred paycheck payday lending; it will also complicate the entire online payday lending business – lenders will wind it more difficult to serve borrowers in the way they advertise  – fast and easy.

However, the proponents of such steps say that those are necessary as payday loans are much more expensive than their traditional counterparts and taking into consideration the fact that not all of these lenders have proper license, it makes sense to introduce stricter measures of regulation.

In accordance with the California Financial Service Providers Association (CFSP) point of view, such steps, however, will quite negatively affect a lot of lenders who are both licensed and reputable and many will be actually be forced out of the business.

Surely, with much of the controversy around payday loans, other officials see the matter differently and the California Department of Business Oversight is all for the aforementioned steps as well as placing other limitations to payday loans. In their opinion the easier is the access of lenders to any resources that are not paper, the more vulnerable customer are. It is directly refers to all the online transactions and especially, bank ones.

Surely, a good intention as it may seem, the step to get back to paperwork at the age of technology does seem strange from the side of the state. However, it looks like California law makers hasn’t managed to find a better way of preventing fraudulent operations that with bank accounts; and some steps are better than nothing.

It also looks like California is trying to solve a controversial payday loan issue by cleaning it up payday lending instead of simply banning it, as other states tend to practice. However, it is hard to say, whether such practice will be more effective.

Apart from planning paper-check requirement implementation, California law-makers seem to follow the same mental path as Utah. A special database for payday loan users is planned to be created; it is supposed to help tracking users with existing loans. In accordance with the current legislation lenders are forbidden to provide loans to customers with the loans they haven’t yet repaid; however, at the present moment it is hard to check the fact of outstanding balance and the new database is likely to help, if introduced at all. This practice is already in place in Florida and Illinois as well as in some other states; time will show, how it will be in California.