Most of the payment defaults that borrowers of payday cash advances incur are due to the short repayment periods. High fees are also big contributors to defaults because borrowers couldn’t afford to pay for them in a very short period of time. New bills have been passed in the US Senate to address this problem. Borrowers will have more time to repay their payday cash advances and the fees associated with them are limited.
The two new bills will impose new regulations on the payday loan industry. According to Sen. Joseph Keaveny, “The bills are attempts to address the industry’s worst abuses by requiring a minimum repayment period of 90 days and a state database to monitor lenders. This is to allow payday cash advances to serve as an emergency lender. Let’s hold them to what they call themselves.” Keaveny and Sen. John Lamping are the co-sponsors of the bills.
Aside from the 90-day repayment period given to payday cash advances, the bill will also prohibit borrowers from having more than one outstanding loan at a time. This means that rollovers or the renewal of payday cash advances every 2 weeks with additional fees, will be prohibited. This is to urge borrowers to make regular payments. According to Sen. John Lamping, “This might be that one year after so many years where the industry makes a serious attempt at self-regulating.” They hoped that this bill will be the crucial firsts for reforms in the payday loan industry.
The existing state laws have allowed lenders of payday cash advances to give their borrowers a repayment period of 14 to 31 days secured by a post-dated check. Most of these loans cost their borrowers about $17 to $20 per $100 borrowed. Additional fees are charged if the borrower renews the loan for an additional two weeks.
However, there are pitfalls in these bills according to some. Rep. Mary Still doubts if the co-sponsors (Lamping and Keaveny) have a bill that will put a dent in the problems she sees with the industry. It has been proven that when fees are limited and interest rates are capped at 36% APR, there has not been any sign of eradication of predatory practices among lenders. The bill may be a great initiative, but it may not be enough. “I would be interested in working with them on a compromise,” Rep. Still added.
But there are others who support the bill, such as James Bryan of the Missourians for Responsible Lending. He said the bill is a good initiative for payday cash advances to move from being a scourge on society to helping in the right direction. Randy Scherr from the United Payday Lenders of Missouri also added, “If the bill drives the industry out of the state, then it will cut off emergency credit to people with no other means of obtaining it. So, this bill needs further study before total implementation.”
For borrowers of payday cash advances, it is important to know the inclusions and the limits of this bill to have an informed choice. For lenders, it will be helpful if you also read the terms enclosed in this bill. And for legislators, think of a win-win scenario for both the consumers and the lenders.