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States Clamp Down On Payday Loans [Legal Issues]
February 13, 2008, 11:54:22
While many areas are seeing a sudden increase in the consumers who are turning to cash advances in order to actually manage all of their bills some states are staring to put the clamp down on Pay Day Loan businesses to ensure that things are not spinning out of control. This is especially the case in places such as Virginia where legislature is going through the house that seeks to impose some very strict limitations on the industry, and also on the pocketbooks of consumers as well.
The biggest piece to the bill that lawmakers are trying to slide into the new law is a limit of no more than 5 cash advances per consumer per year. This is in stark contrast to the average of 13 cash advances that many consumers in Virginia are currently looking at each year. While this may seem like a fabulous idea because it dramatically reduces the amount of interest that a consumer is paying, roughly down to $150 a year compared to $390 on average it is hitting the potential wallets of many consumers very hard.
The additional aspects of the new laws include limitations added as well which will limit the amount of interest and fees that cash advances are allowed to charge. While this might seem like no big deal to the average consumer, it is actually a huge deal to the cash advance industry. The main reason why this is striking the industry so hard is because it could very well force cash advance businesses to lower their interest rates from the current average of 390% to as low as 36% which would be saving consumers hundreds of dollars in interest every year.
While these changes might seem small, it is actually a very large problem. If the cash advance industry is unable to make money by helping consumers meet their short term cash needs it is only a matter of time before the cash advance industry screeches to a halt. Of course, to those who think that a cash advance is the ultimate evil this does not seem that bad, but to those consumers who have found themselves on the receiving end of a cash advance it is a huge help having the ability to quickly and easily get access to some emergency money.
In the short term, placing these limits upon Pay Day Loans is great, but the bad news comes when consumers are forced to start looking in new places for ways to help meet their budget needs. Of course, those who have good credit are able to turn to private loans through traditional banks and other such places, but what about those consumers who are left behind because they have bad credit? With the costs of a bounced check easily reaching $50 and higher for each single check it is quite easy to see how those consumers who have bad credit are going to find themselves suddenly buried under a massive pile of debt and bills that they cannot manage.
As the lawmakers sit and argue over the exact details, many consumers in Virginia sit around nervously waiting to see what will happen and hoping that their own financial existence is not thrown into jeopardy. In the meantime, those who are in support of the measures that are being discussed all sit around anxiously awaiting the day when the law is actually passed to help protect the consumers who are nervously sitting around right now.
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