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.
In accordance to the UtahPolicy poll the majority of the state residents want payday loan industry to be more seriously controlled.
There has been a lot of controversy with regards to payday lending and every legislative session had payday loans mentioned and discussed. The session at the beginning of a year was no different.
In Utah payday lenders can operate more freely than in some other states of the country and lenders here can charge interest rates that are 400% in APR, which is really a pretty high interest. There has been several scandals with regards to payday lenders and there sure coming to be more.
The major question stated by the poll carried out by Pollster Dan Jones & Associates is whether residents of Utah are for or against the limits on payday lending as well as introduction of a payday loan database tracking system.
The thing is that payday loans being so controversial, the offered database will allow tracking the number of loans per person as well as loan amounts. As a result, a person with more loans than it is allowed, or a bigger loan balance will be unable to take more loans. This measure is proposed as a step to protect borrowers against unhealthy lending habits; however, it also seems to limit the rights of the latter as a person should be able to get as many loans as they wish to.
The poll showed that about 57% of the voters advocate for the idea that stronger regulation for payday lenders is a good thing for the state as well as that a certain limit to a possible debt will result in fewer people getting into the situation when they borrow more than they can afford. They are opposed to 37% of people who do not see the limit as a necessity.
The residents of Utah who are Republicans are sort of weary when it comes to business regulation. However, they seem to be in favor of the first option: 54% against 41%. Democrat camp also speaks in favor of stronger regulation – 65% against 30%. And so do independent voters: 60% against 33%.
It is not news that young people with not stable incomes are more prone to using payday loans; however, in accordance with the aforementioned poll, they also speak in favor of stronger payday loan regulation in the range of 69% against 20%.
With such figures it looks like more changes to payday loan legislation in Utah are on the way.
It is well-known that Texas refers to permissive states when it comes to payday lending regulation. This results in the number of payday loan places as well as in the popularity of such loan product as well. At the present moment the state displays the statistics that an average amount of a loan taken in Texas is $468, while the nationwide statistics is much lower – just $392.
This is explained by the fact that Texas has no strict limitations to the amount of a loan that can be issued, nor does it actually cap the interest in the way some other states do. As a result, interest rates here are also higher than across the country as well. For instance, APR is 439% in Texas; and nationwide one is 339%. Similar statistics can be found in the sector of car title loans.
As with payday loan issue elsewhere – the topic is very controversial and there is much debate going on about the necessity of payday loan law restrictions. Some advocate for it, others are against and the latter actually say that by introducing restrictions borrowers are also restricted in their access to capital.
Besides, there are still questions about such huge popularity of short-term loans despite the fact that they are so expensive. For instance, car title loans can be renewed 8 times in Texas – this results in about pays $2,142 of interest (for a loan of $941) and it is pretty expensive.
Still, borrowers do apply for payday loans as well as short-term auto loans and the problem with high interest is not in the interest being actually high; but in the fact that people just do not understand how the APR calculates and how the eventual number form. Surely, payday loans have interest rates that exceed rates for any other type of credit – but no one tries to conceal it and lenders do notify their customers about the rates. After all, they have to do it, to disclose their terms in order to operate in the state.
Hence, the criticism about payday lenders is not always fair since borrowers frequently have little trouble checking and extra checking and making sure they quite understood what they sign into.
All this does not mean that payday loan industry in Texas does need more changes in the regulation and that they do not happen. It is very likely that next to the House Bills 2592 and 2594 some other will follow. Right now in Houston payday lenders are not allowed to give loans in amount more than 20% of a person’s income and some other cities followed suit. It seems like permissiveness acquires more restrictive traits all the more.
It is a normal situation when a person can’t make it till the next paycheck and has to apply for a payday loan, there are a lot of people who actually live this way on a regular basis and most of them would agree that such life is really full of stress.
The recent statistics also shows that about 69% of payday loan customers covered their regular bills with the help of payday loans and 16% of them only use such loans in cases of emergency (that they are actually supposed for). However, despite the fact that payday loans come in handy in avoiding immediate financial problems, they can create other that are connected with the repayment. It is also quite frequent as the interest rates for such loans are relatively high; at least they are always higher than the ones for regular bank loans.
One of the consequences of such lending and inability to repay in time is that people have to roll-over their loans, which results in the accumulation of the debt. Many people with payday loan experience are wary about using these loans again; however, others say that the right approach is the key to such borrowing and that payday loans can be deadly useful, if you know how to handle them.
Payday lending has been a topic of many heated discussions in the states recently, especially those states where the legislation is either hybrid or restrictive; there are states that prohibit such form of lending, so they are done with the problem.
In Utah, for instance, the new law is in the process of making and it presupposes a 60-day break after 10 weeks of repayment limit: that is exactly how long lenders will have to wait before taking any action against the borrowers, provided that the law makes its way through. This is yet another attempt of the state to protect their customers and provide them with better sense of security.
In accordance with the law in question a lender will have to sue a borrower in the city of the latter and not make one to come to a lender’s city. Certain alternations are surely to be expected to be made with regards to extension opportunities and etc.
It is only natural that this bill is expected to pass without really much opposition; though, it restricts the options of lenders to a considerable degree and will probably decrease the popularity of these loans. It is at the present moment is taken into consideration in the state of Utah; however, there is a good chance that other states will follow the example.
Payday lending legislation is taking a new turn in 2014. Surely, the industry had to answer to a certain amount of criticism that it receives regularly. This time more improvement is expected as the previous legislation didn’t make it through the Senate.
As of today, payday loans represent short-term unsecured loans offered to the customers at rather high interest rates. They usually have 3-digit APR and are very much criticized for that. They are also accused of leading customers into a debt trap. This is the reason why the ideas about the new legislation are in the air and that new bills that will restrict the interest rates are necessary.
Surely, payday lending industry cannot stay partial to such introductions. Their representatives defend their rates and say that they are more than legitimate and, moreover, they are absolutely transparent and clear – no strings attached. Besides, people who apply for their services know what they deal with and are well aware of the short nature of the product as well as their rates.
The loan industry representatives stress a lot the fact that the customers who come to them know the cost of the loan and they go on using the product nonetheless. Besides, there is no such thing as the debt circle as the majority of customers handle their repayment in time, so the facts the opponents rely on are not strictly to the point.
For instance, as of the Advance America statistics, about 95 % of their loans are repaid in time and only 2.5.% are late and 2.5 are just lost. So, the data is quite eloquent.
The representatives of the payday loan industry offer the legislative body to pay more attention to illegal lenders and various companies that operate illegally instead of trying to impose more restrictions on law-abiding companies.
The proponents keep saying that it is easy to treat every payday lender evenly, decent or not. However, it is quite clear that this is not the right approach. There are good and law-abiding lenders who run their business well and they get their profit in a natural and decent way; and there are scammers who just care about profit at all costs and these are the ones the government should be worried about.
At the present moment the legislation that will cap payday loans at 36% is considered. There are states with such small loan cap already; however, some still have payday loan interest rates not that strictly fixed. Surely, such alternation is likely to bring a lot of payday loan business to their closure; however, time will show whether the bill will pass the Senate or not this time.
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