Latest Developments on Payday Loan Companies and Lending Laws

Of late, enough has been said on the risks of short term loans offered by non banking entities and their harmful effects on consumers. The financial experts are divided on their opinions regarding whether new laws should be implemented to tackle the practices of entities that offer personal loans online at very high interest rates which they project as one time charges. The detractors of these loans are of the view that the lenders end up paying a huge mount as interest for quick cash and often they take up new loans to repay old ones.The government and its financial watchdogs have suggested some reform measure to ease the burden of consumers. However, it is imperative to understand why the fast cash loans providers rose to prominence in the first place. Their growth has been fueled by two factors mostly. The financial crumbling of economy and subsequent toughening of bank lending rules forced millions of people to look for alternatives for short term and quick cash needs in last few years. The younger generations for whom credit card and online shopping has become part and a parcel of life often run into monetary crunch owing to uncontrolled spending. They find the no credit check payday loans companies a better alternative than banks.

The convenience of instant loan processing and simple documentation offered by these agencies keep the younger lot lured to these financial solutions, say industry experts. They do not mind churning out steep processing charges required by these agencies as it saves their time and enables them to get personal loans online in accounts without many terms and conditions. However it has also been seen that several people facing expected money crisis resorting to these loans, including those who are cautious spenders.

In various states of the USA, laws regarding payday loans are not exactly the same. Of late, politicians, financial experts and consumer forums are calling for reforms and law amendments to make the laws more suitable for customers. As a matter of fact, the no credit check payday loans players are not exactly sitting idle over these developments. In recent times, a trade group for short-term lenders published its objections to analysis of a federal regulator on this industry. The payday lenders representative, Consumer Financial Services Association reacted to a report published by Consumer Financial Protection Bureau. The latter may propose to standardize the loans and a lengthy battle may ensue in near future.

Payday loans, which usually have repayment duration of two weeks, are offered by online brokers to help people cope with unforeseen cash crunch. The CFPB report came down heavily on this industry mentioning that consumers get into a cycle of borrowing after resorting to these loans. The payday-loan trade entity confronted the regulator’s analysis saying that it is exaggerating consumers’ repeated borrowing.
While the CPFB says almost 48 percent of borrowers taking fast cash loans took over 10 such loans in a year, the lenders argue the frequency is not that high. The lawyer Hilary B. Miller representing the payday-lenders body said that the CFPB report focuses on the heavy users and effectively generalizes the result.

While the CFPB has declined to comment on the development, the former deputy director of the entity, Raj Date has spoken at length about plans to develop alternative to no credit check payday loans. After leaving CFPB early this year, Date opened Fenway Summer a consumer finance consulting firm. While the firm will focus mostly on mortgages, he said recently in an interview that the next target is the controversial area of short term cash loans.

Date also said that for the welfare of low-income groups, developing more affordable and feasible fast cash loans is the need of the moment. He added that he is open to the idea of collaborating with one or more banks to develop such financial solutions in near future. It may not be an easy thing to accomplish, even more so at a time when banks are walking tip toe- in their bid to cater to cash-strapped customers better without drawing wrath of consumer groups. Regulators have pioneered firm guidelines that may eventually erase out deposit advances offered by leading banks like Wells Fargo. As it is, the CFPB is in process of making regulations to impact short-term fast cash loans for both payday lenders and banks.

Date is of the view that banks have the means to churn out more affordable short-term loans without incurring losses. He thinks general no credit check payday loans cannot get much affordable owing to profit margin reasons. Date cites example of the way prepaid cards used to be much more expensive till Wal-Mart reduced its variant’s price. The same logic can be applied for short term fast cash loans.

The new laws pertaining to changes in payday loans may not be totally against the interest of the sector. The consumer protection groups went gaga over Joint Finance Committee’s decision to take away a condition from state budget that could let off the fast cash loans players from orbit of consumer protection laws. However, the budget amendments now impose stricter rules on deadlines for repayment for borrowers.
Under the current law, a borrower is considered defaulter after 40 days of due date for a loan. After the new amendment is implemented, payday lenders can declare a borrower as defaulter just after 10 days of due date for repayment. Thereafter, they can allocate that debt to a collection entity or sue the borrower. Wisconsin Public Interest Research Group’s executive director Bruce Speight said it was a favor done to the payday loan industry. Senator Glenn Grothman also expressed disappointment at the development.

However payday lender entities were quick to term the development as striking a balance between business fairness and consumer protection. The view was echoed by Advance America’s VP of public affairs Jamie Fulmer. The entity is a South Carolina based payday lender. He added it is important to ensure customers pay back in time to continue transactions with an entity.

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