The future is uncertain for an industry that some consumer advocate groups feel are preying on people in financial trouble. On the other side of these consumer groups is a well organized and heavily funded group of lobbyists in favor of payday loans. With the economy currently under scrutiny by lawmakers, some people are wondering if the time has come for the Federal Government to re-implement Federal usury laws that were abolished during the Depression.
Each state has its own set of usury laws, whether these laws limit the amount of interest that can be charged on loans or not. Over the last decade the rise in companies providing payday loans have pushed the limit on all of these laws. Some states have passed safe harbor laws for payday lenders, but others are still debating if payday loans are good for consumers or if these loans are just a burden on low income individuals.
The fight over predatory lending has gained steam in recent months due to the current recession, which has caused many in D.C. to consider legislation to impose federal standards and interest rate caps on all types of loans. So far 13 states and the District of Colombia have passed laws that either outlaw payday loans or cap their interest rates so low that providers cannot make enough money to make it viable.
To further put an end to payday loans the Federal Government took steps to protect members of the military from getting in over their heads with these loans. Currently, Congress is considering several bills that would cap interest rates at 36%. This cap would effectively end payday loans and could also save some people money on their credit cards.
Virginia passed legislation that was intended to protect consumers that use payday loans from unfair lending practices. The law also requires that lenders use an Internet database to ensure that consumers do not take out too many of these loans at one time. The new laws have only completely gone into effect at the beginning of the year, but some feel that there are too many loopholes that make the law ineffective.
As the debate continues in each state, many feel that the fight will only be resolved on a federal level. Some politicians like Terry McAuliffe are calling for an all-out ban on payday, car-title, open ended, and cash advance loans, all of which carry triple-digit interest rates. Hopefully everyone involved in this debate can come to an agreement that will not only protect consumers, but will also make payday loans safe for those that need easy short-term financing.