Payday Lending Under Legislative Scrutiny

Payday Lending Under Legislative Scrutiny


Payday loans, those easy to get but expensive to pay off unsecured personal loans, are coming under intense scrutiny vote.jpgin many states across America. Consumer advocates are pushing for legislation that could severely curtail or eliminate payday lending, without providing an alternative for financially pressed citizens who have poor credit.

In Ohio, for example, that state’s House of Representatives is weighing two bills which would cap annual interest rates charged by payday lenders at either 25 or 36 percent, which is only a fraction of the 391% currently allowed. Ohio has 1600 payday lending shops most of which would likely have to close if the new rules were to kick in. Payday loans are also marketed as cash advance loans.

On the federal level, no such restrictions are in place, but if Barack Obama has his way the 36% limit applicable to military families would be extended to all American families. As part of his campaign strategy, Obama has promised that the new bankruptcy legislation enacted in 2005 would be revisited to help families who are bankrupt due to medical bills.

Payday lending allows virtually any consumer to borrow as much as $1500 without a credit check and have those funds deposited into their bank’s checking account upon approval. Terms vary, but many loans are very short term requiring repayment of the amount borrowed plus interest 7 or 14 days later.

The U.S. Congress passed a law in October 2006 capping payday loan rates for military families at 36%, the same sort of legislation Obama and others are considering on the state or federal levels.


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Categories: Consumer Financing

About Author

Matthew C. Keegan

Matt Keegan is a freelance writer and editor as well as publisher of "Matt's Musings", his personal blog. Matt covers campus, consumer, business and financial topics on various websites and blogs, and has been published in the "Houston Chronicle", "Sam's Club Magazine" and "Wisconsin Golfer".