How are payday loans regulated?

Regulatory building
Among various types of loans that are available for people going through tough financial times, payday loans are a useful medium for many individuals. Payday loans are easy to obtain as there are very few requirements to get such loans approved. Proof of adequate income is mostly sufficient to get payday loans.

Regulation Parameters

Payday loans have been regulated in over thirty states across the country. The CFPB (Consumer Financial Protection Bureau) has been made responsible for looking over consumer protection in the short-term loan industry (as well as other loans). Another organization to enact protective regulations over the industry is the Community Financial Services Association (CFSA). The CFSA is specific to payday loans and governing body composed of short-term lenders from across the nation. Consumers would be better protected if they approached lenders who are members of the CFSA when they are seeking payday loans. Members of CFSA will be complying with high ethical standards than those lenders who are not members of this Association.

Regulations on Usury

Usury refers to the practice of high interest rates being charged on borrowers. It is a practice which is not appropriate and is considered unfair in a civilized society. The poor and the lower middle class are normally the victims of such practice. Thanks to some sensible restrictions, such daylight robbery has been kept on check with regulations being imposed on the outlets handling payday loans.

Maximum Loan Values

A payday loan may range from the sum of hundred dollars to thousands of dollars based on the monthly income of the borrower. These monthly earnings along with the ability of the borrower to pay the amount back on the due date are verified before the loan amount is fixed.

Restrictions on the Loan Term

Individual states have restricted the time period involved for the payday loan amount to be paid back. A normal repayment period is two weeks, or 14 days. Depending on the borrower’s state, these terms could be extended by “rolling” the loan over.

Federal Regulations

All lenders extending cash advance have been asked to meet the requirement that have been set in the federal government’s Truth in Lending Act. This legislation demands that the lenders show the actual cost of the loan to the borrowers when advertising their products for payday loans. This actual cost is expressed as an annual percentage rate (APR).

Restrictions on Application Fee and Termination

The CFPB and CFSA have given guidelines for the standard fee limits for the termination of a payday loan. Along with these standardized fees, other requirements set forth by these guidelines are that lenders cannot charge borrowers any extra fee for paying back payday loans before the specified date of repayment.