Cheap Payday Loans And Payday Advances – Crackdown Coming?

Writer: Gayle Goh on Jul 28 2010.

A crackdown on payday loans and payday advances may be coming.

The Financial Reform Bill is casting a long shadow on the faces of Payday moneylenders on its way past Congress to President Obama’s office, where it will soon be signed.

The bill is expected to create a new government agency called the Consumer Financial Protection Bureau (CFPB) aimed at regulating the financial lending industry.

One of its methods will be to crack down on short-term loans with caps and regulations.

Payday lenders are quite literally named in that they provide loans to tide consumers by until their next payday.

Their interest rates typically range from between 15%-30% for a two-week period. Expressed as an annual percentage rate (APR), this translates to 390%-780%.

It is uncertain how much if any blame is to be put on short-term loan providers for the crushing debt crisis.

Critics have rounded harshly on payday companies for allegedly trapping the already-poor into cycles of debt.

These critics include U.S.-based Consumers Union and governments around the world, such as in Canada and the UK.

Payday loan defenders, however, point to subprime mortgages and Wall Street firms as the root causes of the problem, while citing the millions of lower-income consumers denied access to credit who call upon their services.

They also accuse the APR calculation as being misrepresentative, arguing that their loans actually provide more value for money as they charge a smaller loan percentage fee – merely spread out over a more realistic short-term.

Regardless of the pros and cons of short-term lending, payday lenders remain in a sweat whilst their fate hangs in the balance.

“The payday loan industry is already closely regulated,” says Gabe Rodriguez, online author and proponent on the topic of payday loans. “States which have allowed regulated payday lending have very few complaints.”

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