Payday loans have long come under scrutiny from watch dogs and federal regulators. But now, in February 2015, the regulators are going to ensure that payday loans are more stringently checked. This is in the face of mounting debt within the US.
In the US, payday loans have been subject to individual state law. Now, the federal regulators are going to crack down on the loans. They are going to ensure that short term loans of all kinds are closely checked and safeguarded. States, for years, have been hoping to get laws passed to this type of debt. After all, payday loan providers have been able to exploit weak links in the system for the course of the last decade. The introduction of regulation can ensure that the payday loan industry is not taking advantage of those who are vulnerable to the system.
A Need for Change
The payday loan sector, in the US alone, is worth nearly £46 billion. Many banks and debt companies have stated that there needs to be more done about this soft lending.
The unaffordable nature of the loans is leaving many people in financial hardship. On a larger economic scale, it could leave the US wide open to another financial crash. It’s imperative that consumers of these loans are protected. Robust regulation, it seems, is the key to ensuring that this problem is minimised.
The Realities of Payday Loans
Debt Consolidation USA, an online based debt consolidation loan provider, has stated that they have seen a sharp increase of people using their services.
This is due to the unrealistic nature of interest and terms that are associated with payday loans and expensive short term lending. Low income households tend to be the ones that opt for these kinds of loans. The reality is that payday loans are quick and easy to obtain. With instant money being provided, people are not looking at the facts of what these loans can do.
Often, people apply for these loans when they are in desperate circumstances. A typical payday loan can be in excess of 400% APR. When it comes to paying the loans back, many families are left struggling to repay. What’s more, they are then hit with court orders and debt collection agencies.
The aim of the federal regulator is to ensure that people are not caught up in these unscrupulous tactics. These are often used in the face of short-term lending. What’s more, those who take out this kind of high interest, short-term loans have a limited success rate when it comes to getting out of debt. The key is to ensure that regulation, alongside the CFPB, is upheld.
A Lack of Regulation
Latest figures show that 35 states have no laws directly relating to the provision of payday loans. However, some states have made these loans illegal or have more stringent checks and balances in place. The new rules as espoused by the CFPB and the federal regulators could be just what the US needs.
With more US families facing debt, this could be the perfect solution to ensure monetary stability