About the Payday Loan Reform Act

By: Mevish Jaffer
Over the years, skeptics of the payday loan industry have continued to scrutinize the practice of loaning cash advances. These “quickie” loans enable individuals to get their hands on instant cash for financial emergencies. The application process can even be completed online with some personal information regarding the borrower’s age (which must be 18 or older), employment status and income details. In exchange, lenders require borrowers to pay back the loan on their next payday or face steep penalty charges. Consequently, problems typically arise when individuals are unable to make repayments on time.

Payday Loan Legislation: New Cash Advance Laws

Many critics of the payday loan industry tend to feel that victims (borrowers) are often lured in by these “loan sharks” (payday lenders), who are only interested in turning over a profit from their misfortunate financial situations. The debate sparked among opponents and advocates alike has motivated some lawmakers to recently put a piece of legislation called the Payday Loan Reform Act before Congress. Keep reading to learn what that means for the cash advance industry and you.

The Payday Loan Reform Act was originally introduced in March by subcommittee chairman, Rep. Luis V. Gutierrez. Calling for new cash advance laws, the payday loan legislation caps loan fees at $15 per every $100 loaned. While consumer advocates feel this amount is too high, the payday loan industry claims the opposite, believing it’s in fact too low! The payday reform act aims at focusing on two of the major conflicting factors regarding cash advances: the fees charged by lenders and alternative options for collecting money when consumers fail to repay their loans.

Support vs. Opposition

There’s no denying that the payday loan reform act has both staunch support from some individuals, groups and associations, as well heavy opposition from others. A few advocates for the cash advance industry believe there is a misconception about payday loan customers being uninformed and lenders in turn, taking advantage of this. While there have been recent studies conducted to support this idea, many payday loan critics remain skeptical.

So far, the payday loan reform act has received some consumer concerns, as well as opposition from the payday lending industry. However, Gutierrez has responded to the resistance by further explaining how the reform act will work to better regulate payday loan laws. For example, he ensures that rather than cutting back on any existing or current consumer protections, the payday loan reform act will actually encourage states to maintain their role as the primary protector of consumer rights. According to Gutierrez, the payday loan legislation will also create a federal platform for additional consumer protections to be added.

Additionally, Gutierrez also claims that the reform act will serve to eliminate the ongoing payday loan debt cycle by providing borrowers with a three-month repayment plan without tacking on additional fees or interest charges. Although the payday lending industry opposes the proposed caps, stating that they are much too low, Gutierrez continues to emphasize the benefits. According to him, the proposed interest and fee cap would be an improvement to the current payday loan laws in 23 states. It’s also important to note that the payday reform act makes it illegal for lenders to make more than one payday loan at a time to consumers, or to set up a payment plan from another cash advance loan.  So the question remains, is the payday loan reform act the best course of action for better regulating cash advance practices among consumers and lenders? It’s clear to see where supporters and opponents stand, but it’s up to you to decide which group you fall under.