Regulation of the Payday Loan Industry

Many states are attempting to further regulate the payday loan industry by imposing stricter guidelines and procedures. Most consumer of the payday loan industry tend to fight the more stringent guidelines, because these measures would limit their access to payday loans. In spite of the attempts at further regulation, the payday loan industry is growing both in number of loans and dollar amount of loans processed.

In the state of Washington alone, there were at least fourteen bills introduced in one legislative session that would have put a tighter stronghold on the payday loan industry. A vast majority of those bills were halted in committee and never made it to legislature. If they had passed, these bills would have lowered payday loan interest rates and put a lower cap on the amount a borrower could access. The industry, of course, argued that the lowering of interest rates and the minimizing of loan amounts would greatly hurt their business.

An even more heavily opposed bill was the proposal to create a statewide database of payday loans and borrowers. This would have given both the state and the payday loan industry a way to track people’s borrowing habits and let other payday loan companies know if this particular person had any other current accounts open at rival loan companies. This was seen as an intrusion into people’s personal finances.

The state of Washington has already passed several bills that provide consumer protection and that could be damaging to the payday loan industry. The state requires a 1-day cancellation authority on all loans. In other words, if you go in on Friday and get a loan for $500, as long as you bring back the same $500 on Monday, the loan company has to cancel the loan. The state also requires a repayment plan be set in place if the borrower has four accounts from the same lender. Once the fourth account is opened, the borrower can be set up on a payment plan that gives them at least 60 days for repayment of the loans.

The state of Oregon has also tried to pass several bills, including one that would have imposed mandatory 31 day loans, which would eliminate the rollover option of the loans. This would be beneficial to the consumer by forcing them to repay the loan in a timely manner, but would have been a big money loser for the loan companies. In the same time frame in the state of Oregon, the dollar amount of payday loans granted has risen almost 300% and the number of loans accessed has grown almost 150%.

In New Mexico, a bill was introduced that would limit the amount of loans to $1000 each and impose some restrictions on some fees and charges. A certain bill, while it did not prevent rollovers, specified that once a borrower had repaid twice the amount borrowed, the loan would be forgiven.

In Maine there has been a push for the expansion of laws that would greatly benefit the payday loan industry there. Currently, a loan under $250 has a fee cap of $15, while a loan over $250 has a fee of $25. The proposed law would allow the payday loan companies to charge as much as 17.5% per week, or $17.50 per $100 borrowed. Also, payday lenders would be exempt from the consumer credit code. This would give them more options for advertising methods as well as collection methods.

If researched in great detail, you will find that most regulations are in state type regulations, and only apply to store-front businesses. This leaves the internet payday loan business open for a more competition.