Who Is Responsible For Regulating Pay Day Loans?
We have all seen the catchy ads on TV or on the internet. They are often shown during the day time, or late at night when most people should be sleeping. A person needs money quickly due to a unforeseen circumstance, but doesn't get paid until next week. The pay day loan folks promise the money you need today, and for a fee you can get a "loan" or a "cash advance" towards your next paycheck. It seems simple and harmless enough. But is it?
Proponents of the pay day loan lenders say that they are providing a much needed and valued service to its customers. While the pay day lenders do charge a fee based on the amount of the cash advance, they state that it is one that is reasonable, and is not a huge profit for their business. They state that they are regulated by the individual states, not to mention themselves so that they are not associated with unscrupulous people or entities.
Proponents further state that the pay day loan enterprise provides services to those in need, after all other services are no longer available. Those that utilize the services of pay day loans may have a tarnished credit rating, and may be no longer able to obtain loans from other financial lenders. They may not have any way to obtain a credit card, or may have used their entire balance on their credit card. It is for these very reasons that the pay day loan enterprise is used, and needed today.
Opponents of the pay day loan enterprises say they are unscrupulous regardless of what regulations are in place. It has been reported that people feel that the pay day loan service is something relative to loan sharking. While the fees the pay day loaners charge may not seem significant based on the amount loaned, but due to the short term of the loans (usually about two weeks), the APR is sometimes in excess of 300%. Add in any late fees, or collection fees and that percentage soars even higher.
Pay day loan opponents further state that these services exploit those who are in financial need. By exploiting them, they are profiting off of these low-income families and creating a further financial drain on their funds. Unfortunately a lot of the patrons of the pay day loans services get into a cycle of needing to utilize the pay day loan business. They are unable to save any money, and therefore continue to need the loan services on a bi-weekly basis.
Opponents further state that even if there is state regulation, the pay day loan services often disregard or ignore it. Many states have limits on how much can be borrowed in a two-week cycle, and how much can be charged for taking a cash advance. There have been many lawsuits against the pay day loan companies where they are accused of charging more than the state regulations allow.
So the question everyone asks is "who is responsible for regulating the pay day loan businesses?" The answer isn't so simple, and is generally up for interpretation. The businesses themselves state that for the most part, they can regulate themselves. They charge enough to stay in business, make minimal profit, and provide checks and balances to make sure no illegal boundaries are crossed. The states argue that legislation should be in place to protect the customers at large. This protection includes regulations that prevent customers from being charged exorbitant fees that are not well publicized, and collection methods that are often questionable. The loaners claim that many regulations that are proposed would shutter the loan businesses. They state that due to the high default rate in their business, they need to charge what they do to stay in business. If limits are placed on fees and loans, the business would no longer be profitable. States such as Arizona essentially forced the payday loan businesses to close due the cap on fees that exceed a 36% APR. The businesses could not afford to stay open due to their overhead, and risk for losses on defaulted loans.
Some people state that the general abolishment of the pay day loan business would not be a bad thing. Others state the pay day loans provide a valuable financial resource. The answer obviously lies in the eyes of those who are affected by the need.