By: Gaurav Bhola, MSM, Managing Editor
Payday advance loans have been in the news lately and last week was no exception. The first week of January saw the second largest payday loan lender Check 'n Go conjure up plans to disregard a ruling by District of Columbia City Council banning payday cash advance lending.
Initially, Washington D.C. City Council in September 2007 placed a maximum cap on interest rates that could be charged for the short-term personal loans at 24 percent. The immediate reaction from the city’s vast cash advance lenders was an immediate shuttering of their stores. The lenders stated that the law were too strict and didn't give consumers enough choice of a much needed service.
Also, the lenders mentioned that the new law made it cost prohibitive for them to make loans, hence deciding to close shop. Check 'n Go, the largest payday lender in the city, stood to be the most penalized by the twenty four percent annualized caps.
Payday loans have had their share of controversy over the years, as a few state governments have banned payday loans. Check 'n Go has found a way to circumvent the D.C. laws by deciding to offer only check cashing.
Herein, by exploiting a loophole in the Council's declaration, the lender intends to offer cash payroll checks for up to 14 days in advance, a slight variation of existing financial instruments, payday loans. District of Columbia permits check cashing stores to charge up to ten percent of the check's face value. The ten percent is the cost of the check cashing fee, Check 'n Go plans to use the ten percent as a new type of cash advance fee.
But the national payday trade organization has yet to weigh in on Check ‘n Go’s plans. The Community Financial Services Association of America (CFSA) is a nationwide group that promotes the interests of payday lenders, responsible regulation of the industry, and consumer protections through lenders’ Best Practices. The CFSA has long been vocal about laws that stop consumers from getting personal loans which they believe has led to consumers pursuing more expensive credit options such as, high interest cash advances from credit cards or getting hit by bank overdraft fees.
Also, the group believes that in states with prohibitive laws, there have been higher instances of bankruptcies due to people being unable to get the emergency cash advance funds.
But consumers do have an alternative in the form of online payday loans or faxless payday loans. Going online to get your cash funds fast is the best option to waiting in lines at payday stores. Check 'n Go will forgo with payday loans and only offer check cashing services under the protection of District of Columbia law. It will be interesting to see if this mew maneuver can outmaneuver DC authorities.
