How are Payday Loans Regulated?
Payday loans are a convenient tool used by thousands of individuals on a monthly basis to help them get through tight financial times. These loans have few requirements for approval and generally only require proof of sufficient income. Because there are so few demands and regulations imposed by lenders for supplying these loans the risk for consumers being charged excessive interest has been a concern in the loan industry.
Pay day loans are presently regulated in some form in more than 30 states across the United States. The Community Financial Services Association (CFSA) is responsible for many of the consumer protections being enacted by the payday loan industry. Each state sets its own laws related to such items as usury, maximum payday loan values, how often individuals may receive a loan and restrictions on loan amounts. Payday loan companies that are members of the CFSA will adhere to a higher set of standards than other non-member companies.
Usury Regulations
The term usury describes the practice of charging excessively high interest rates on consumers that are generally deemed unfair and inappropriate by society. Often the lower middle class and poor are the easiest target for the practice of usury. When someone needs cash to meet certain vital obligations often they will pay whatever interest rate is necessary in order to obtain the necessary funds. However this practice has largely been put out of business due to sensible restrictions placed upon payday loan outlets. Each state that has payday loan regulations addresses the practice of usury and sets the maximum amount of interest that can be charged for such loans.
Maximum Payday Loan Amounts
Generally payday loan amounts are available in the range of $100 to several thousand dollars depending on your request and your verified monthly income, i.e. your ability to pay back the loan when it is due. However states also regulate the maximum amount in certain instances that lenders can provide to customers.
Loan Term Restrictions
Another aspect of payday loan regulations adopted by various state governments includes restricting the time period when a loan needs to be paid back. A common time period for a pay day loan is the two week term loan. Since many people are paid on a bi-weekly basis this provides sufficient time for the next paycheck to arrive so that the payday loan due date can met.
Federal Regulations of Payday Loans
The federal government has also stepped in with some of its own regulations of the payday loan industry. For instance, all cash advance lenders are required to meet the requirements set forth in the Truth in Lending Act. This piece of legislation requires payday lenders to unequivocally show borrowers the actual cost and interest rate of a loan in any accompanying loan agreement or advertising for payday loan products.
Termination and Application Fee Restrictions
In addition to such as issues surrounding the loan itself and the rates charged for borrowing, other fees are subject to regulation. The CFSA has set out standard fee limits for such items as the cost of terminating a payday loan and applying for a cash advance loan. Other beneficial requirement set out by the CFSA is that consumers not be charged extra for paying back their loan before the due date.