Consumer groups rejoice. Canada recently enacted some of the toughest payday legislation of any country where such loans are offered. While the payday lending industry in Canada is less than thrilled, those who have worked to protect consumers from the practices of payday lenders are surely very happy with the new laws that took effect in November of 2009.
Below is a description of some key points of the new rules, called the Payday Loans Regulations, as well as how each point can help to protect consumers.
Limit on Interest
While some locations charge interest rates as high as 1300% on payday loans, Canada has put a strict cap of 23% on the loans in their country. While some other places have similar rules, they often exclude the fees. This exclusion allows lenders to tack on hundreds of dollars of fees, making the effective interest being charged well over the stated allowed maximum.
This is not the case in Canada. Canada’s 23% maximum includes all fees. This came on the heels of a case in which a Canadian court ruled against a payday lender whose fees, said the court, needed to be included when figuring out the interest rate.
A consumer is now able to get a payday loan with an actual interest rate of only 23%, making it a decent choice when trying to meet short term financial emergencies.
Limit on the Number of Loans
Another way that many Canadian payday loan borrowers got into trouble was by taking out several payday loans at one time. While each lender was verifying income information, because borrowers were using more than one lender, they often wound up owing more than they made.
This, of course, made it impossible for the borrower to be able to pay back the loans and resulted in a never ending cycle of borrowing and rolling over their payday loans.
With the new legislation, borrowers may have only one payday loan at a time.
Limit on the Amount Lent
Another key point of the Payday Loans Regulations is that lenders are only allowed to lend 50% of the borrower’s take home pay. This is tight, even among other countries that place a limit on the amount that can be lent.
In the past, lenders would allow up to 80% of a borrowers take home pay to be borrowed. There was no regulation by Canada, so each lender could set limits. For many borrowers, this meant that when payday came around, they were handing over their entire check to the payday lending business.
Limit to Direct Bank Account Access
Another important part of the Payday Loans Regulations is that payday lenders are now very limited on having direct access to a borrowers bank accounts. In the past, a borrower would often have to sign something giving permission for the lender to debit their account. In many situations, this resulted in further financial hardship for the borrower.
Now, lenders are not allowed to demand such full access as part of the loan process providing additional protection for the borrowers.
Loan Cancellation Option
The option to cancel the loan allows borrowers to change their mind about the loan within 24 hours. If they return the money within that time, they do not have to pay any fees or interest.
Limit Access to Employers
In the past, if a borrower was late paying back a payday loan, some lenders would directly contact the borrower’s employer. In some cases, they would call every day until the loan was paid back, resulting in an uncomfortable situation at the borrower’s place of employment.
Under the Payday Loans Regulations, lenders are not allowed to directly contact the employer except as a measure of last resort.
These new regulations were designed with the protection of the consumer in mind. Many think that the industry should not be so tightly regulated and that is should be up to borrowers to read the fine print and to only take out loans that they can afford to pay back.
Of course, the payday lending industry would agree with those sentiments, but Canada lawmakers have decided to place the protection of consumers at a higher place that the profits of the Canada payday lending industry.
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In every country in which a form of payday loans are available, there is controversy surrounding the loans. The UK is no exception. As more and more Britons turn to this type of loan, more detractors express their concern about what that means and to the practices behind the lending.
The Loans
When mortgages were being handed out in the United States without anyone verifying income or other qualifying information, watchdogs cried foul. Today, it is known that such practices, also called predatory lending, helped usher in one of the worst financial crises in recent history. Payday lending in the UK, say detractors, is based on the same principles and leads to similar problems.
Because qualifying for a payday loan involves nothing more than verifying employment and that an active checking account exists, even those with very poor credit can qualify. That means that those borrowers who would be turned down by other lenders can still get a payday loan.
Of course, because there are no credit checks, the risk for non-payment is greater than with traditional loans. That risk is clearly reflected in the amount of interest that is charged. Those who use payday loans in the UK will pay up to 1000% APR, and in some cases, even more.
Repayment is usually made in one lump sum on the borrowers next payday. In some cases, the loan may be split into two payments, but this is the exception rather than the rule. Payment is typically made through automatic debits of the borrower’s account.
Once the loan is paid back, the borrower can then take out another payday loan. The amount one can borrow depends on their gross monthly income and how often they are paid each month. First time borrowers can usually qualify for a smaller amount which will increase after the first loan has been paid back.
The application takes only a few minutes to fill out and, once the borrower’s information is verified, the money is usually deposited directly into the borrower’s bank account within one business day. This makes these loans even more attractive to someone who is struggling financially.
Therein lies the problems, say some.
What it Means
The number of payday loans taken out by Britons has more than doubled in the last few years. The UK has experienced similar issues as other countries when it comes to the average consumer’s ability to obtain more traditional credit options, such as credit cards or personal loans.
The combination of difficult to obtain credit and the rising cost of living expenses make it easy to see why so many more Britons are turning to payday loans, but in most cases it will do more harm than good.
That means that already struggling borrowers now have the added burden of having to quickly pay back a loan with an extremely high interest rate. This leads to very high incidents of re-borrowing, or rolling over the loan, when it is due.
With hundreds of dollars per loan being charged, if a borrower rolls over their loan each payday that can add up to thousands of dollars – just in fees and interest – each year.
There are many who want stricter limits placed on payday lenders. Some ideas include a mandatory cap on the interest rate, a limit to the number of payday loans borrowers can use each year and a required waiting period between loans.
The hope of those advocating such regulations is that it will allow borrowers to take advantage of the payday loans without the loans causing further financial problems.
There are others who want this type of loan banned altogether. If they had their way, payday lending in the UK would become a thing of the past.
While it is quite easy to see the downsides to payday loans, there are some consumers who say the loans have helped them through a difficult month. The key, says payday lenders, is not in further regulating the industry, but in educating borrowers about responsible use of payday loans.
For now, payday lending in the UK is big business. The best way to help consumers is to follow the advice of the lenders and educate them about dangers of using these loans irresponsibly.
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With recent US economic developments, the average American family has had some minor to major financial problems. Besides having to cover basic monthly expenses like rent and food, an entire other category of expenses seem to arise at the worst time but that must be paid for. Such expenses could be anything from veterinary and doctor’s bills, home and car repairs to replacing appliances and new school supplies. Therefore, it is no wonder that payday loans have becoming so popular in the American society.
Short term loans or cash advances are not the norm, making payday loans increasingly more popular since they are more difficult to find but exactly what most people need in these situations. Since it is easy to qualify for these loans, many people take them out but they may not be able to pay them back. This is when the payday lending industry takes advantage of their consumers. All these loans require is that you are an American citizen, with a full time job and have a bank account. A checking account is necessary because you will most likely have to write a postmarked check as a retainer and security deposit for the lending services.
Every payday lending company is different. That is why you should always do your research before selecting a company. Some companies charge various administration fees, processing fees and or application fees plus different interest rates. You should have all of this information before signing on the dotted line in order to find out which company is really giving you the best deal along with reliability and responsibility. You should also consult the laws of the state you live in as the laws change from state to state on this matter.
Americans often fall into the trap of debt because they are unable to pay off the initial loan so they begin to roll over one loan onto another at the suggestion of the lending companies. These roll over loans create even higher interest rates to pay back which leave the borrower in a massive cycle of debt. Many payday loan lenders do not follow their lending regulations because they do not clearly state what the person is submitting to and hide behind legal terminology that most people do not understand. They also try to switch over the payday loan to a sales leaseback which means that the original payday lending regulations will no longer apply to the original loan.
Many payday lenders unfortunately try to avoid the laws that pertain to their services which lead the borrower along a long and dark path of debt. For this reason, Americans must be sure that they can pay back the short term loans that they take out in order to avoid the hassle that comes along with not paying back a loan. If there is anything that you do not understand do not hesitate to go over the information all that you would like so that you do not become taken advantage of by the lending company.
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Payday lending has become a polemic issue. On one side, many people are appreciative of the services that payday lending companies provide to people who are unable to receive small loans. On the other side, many people believe that companies are taking advantage of borrowers with outlandish interest rates which force them into a cycle of debt. Senator Dick Durbin has recently introduced a bill that could drastically effect the days of payday loans.
Payday loans are short term cash advances which are to be paid within a two week period, normally when the borrower receives his or her next paycheck. The payday loan bill introduced called Protecting Consumers from unreasonable Credit Rate Acts seeks to put a limitation on the interest that a lending company can place on a loan. The proposed rate cap would be 36 percent annual percentage rate or APR on any type of credit transaction. This restriction will not affect a few states who already have similar laws in place, not allowing companies to go over the 36 percent rule. However, for those states that do not have this type of limitation, payday lending companies could be losing millions of dollars since they charge in the hundreds for their APR return rate.
The Protecting Consumers for Unreasonable Credit Rate Act was proposed to protect borrowers from this vicious cycle of borrowing. The people who are unable to payback the payday loan are usually forced to keep taking out loans which create larger and larger interest rates as time go on. Since the companies have no limitation or little restriction on the APRs that they can charge, one’s debt becomes greater and greater over a very little period of time. Basically lenders who do take advantage of these people in need are referred to as “Predatory Lenders”.
In Springfield Illinois, the hometown of Senator Durbin, the city council has been trying to reduce such lenders who have been destabilizing their community with such loans. This has been a driving force behind the senator’s bill which can ultimately greatly change if not eradicate the existence of payday loans. It is still unclear as how the bill will be portrayed in congress yet payday lending companies must start looking into the future. President Obama is in accordance with this act as he is also seeking to put a restriction on such predatory lenders. Therefore, if this bill does not last there will certainly be more until one is passed, urging payday lending companies to reform beforehand so that they do not become left behind.
Currently, those payday lending companies, who do not reside in the states that will not become affected by this bill, are beginning to switch over to traditional installment lending practices in the hope that their practice will stay alive. Many have been turning to online sources as they do not seem to be as affected by the impact. If this act is imposed the entire payday loan industry will be looking ahead to difficult times.
