A payday loan is a type of short-term credit, which is repaid by the customer after he receives his next paycheck. The payday loans, which are also called payday advance loans, are considered to be one of the most expensive types of loans. The annual percentage rates on the loans are so high, because of the great possibility of customers’ defaults. The borrowers who usually take payday loans have not perfect credit record. The high rates help lenders to cover their operational expenses in dealing with the customers who are likely to default in future. Even though payday lenders are trying to prove that such interest rates are really necessary to be successful in their business, a lot of mass media representatives accuse direct lenders of using predatory practices in doing business and gaining from the borrowers. Some State legislators have already passed the laws, which establish percentage rates at a mere 36% level.
Many financial experts, in turn, have published articles, in which they criticize the legislators, who have either put restrictions on the payday loans’ rates or completely banned these loans, because of the negative effects of these regulations. A research of payday lending industry, which was held in Colorado, has revealed that not long after the new rates were established, still o lot of payday lending companies used various interest rates, but after a few years the 36% rate was offered by 95% of payday lenders. This number shows that the strict regulations have badly influenced competition among lenders, as now they are only able to charge the same fees from their customers. It is a common practice that if there is no competition, a consumer is the one who suffers from high prices.
In the States where the operations of direct payday lenders are eliminated, customers, who just have had emergency and need urgent money, don’t have any other choice but address to the internet lenders. There are some licensed and secure online lenders, including paydayloanjr.com, but some websites are created in order just to sell the details about a borrower to other internet lenders. These lenders often use in their practices legislative acts of the States, in which they are registered, rather than operate in accordance with the laws of the State, which a borrower resides in. Such internet lenders offer a customer to choose a “law-model”, which actually doesn’t exist, and then provide borrowers with payday loans, which are illegal in the borrowers’ States. As a result, there are a lot of claims against these “lenders” and they need to go to court to prove that their operations are legal.
I wish State authorities had better examined all the possible effects of eliminating payday loans or capping rates on these loans, before passing new regulation acts. In reality new laws on lending industry lead to thousands of job losses and limitations of customers credit alternatives. Then may be we should review the existing strict regulation laws and provide both the economy and customers with better conditions.