USA Payday Loans regulation changes 2019

Payday Loans as well as other short-term cash advance are a matter of continuous debate anв discussion. The Consumer Financial Protection Bureau (CFPB) altogether with the state authorities and the Government are always making and changing rules and regulations concerning this financial sector trying to protect customers from unaffordable fees and dishonest lenders. Find out the latest news on Payday cash advance.

For more than 100 years, the states have controlled small-dollar, high-cost Payday loans through limiting their cost and amounts. Too low finance charges made it unprofitable for lenders to operate legally and authorities had to raise the rates.

At the beginning of the 20th century the Uniform Small Loan Law let the lenders make loans up to $300 with fees capped at 35% per month which was rather affordable to the borrowers.

But over time, as economic conditions as well as borrowers and lenders needs changed, the Uniform Law lost its effectiveness. No new laws were passed which made many companies leave the business.

As a result, traditional installment lenders did not serve consumers who needed loans of only a few hundred dollars.

Only at the beginning of 1990s Payday Loans known as “deferred presentment” transactions appeared at some check-cashing stores. The customers could get quick cash in exchang of a postdated check to be cashed after their next paycheck.

So new laws to legalize payday lending were required. Under these regulations some states allow payday lending with few restrictions, some regulate it closely and others ban it entirely.

Nevertheless, lenders found the way out. They operated mostly in states with permissive lending policy such as Maine and Rhode Island and extended credit through the mail to borrowers in states with more protective laws, such as New York and Pennsylvania, in an attempt to evade state-level restrictions.

Besides, they cooperated with Native American tribes which didn’t obey the state laws and granted loans on behalf of these tribes.

That’s why the activity of the CFPB is so important. The following rules have been accepted to protect the borrowers:

• Lending companies must check a borrower’s ability to repay.
• Payments must be affordable so that the borrower would not get in a continuos cycle of debt.

The benefits of the CFPB’s 2017 rule are:

• dicreasing loans that drag struggling families deeper into debt, while keeping affordable small-dollar loans available.
• creating certain standards for payday loans to make regulating process easier both on the states and federal government level.
• the CFPB rule complements states regulations instead of preempting them which gives the states an opportunity to adopt additional consumer protections, such as caps on interest rates or limits on other loan terms.

Still, the Consumer Financial Protection Bureau can’t control the consumers’ demand for small-dollar loans. However, it can prevent struggling families from unaffordable debt or help them borrow wisely and responsibly.

A relatively high-interest rate for small dollars loans will make sense if you take into account the following facts:

• There are high fixed costs of running the lending business.
• Credit is priced according to risk which is rather high in case of unsecured bad credit Payday Loans.

Besides, the latest studies show that Payday Loans are not the worst alternative for those in need of money. New York Federal Reserve study examined Georgia and North Carolina where short-term loans are prohibited and found that households in those states bounced more checks, filed more complaints about lenders and debt collectors, and filed for Chapter 7 bankruptcy protection at much higher rates than states that had not prohibited payday lending.

University of California, Berkeley study found that payday loans improved people’s financial well-being during natural disasters. It all drives us to the conclusion that small dollar loans may be useful and that “a move to ban payday lending is ill advised.”