The Final Days of Payday Loans
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.
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