A Downside to Payday Lending Regulations?
In the last few years, legislators in various states who worked to put tough restrictions on payday lenders were generally lauded as heroes by consumer rights advocates. But a recent report from Credit.com suggests that tight limits on interest rates might not be enough to prevent customers from getting trapped by high-cost loans.
Why? Because, it seems, in states where payday lending has been outlawed or greatly restricted, some consumers are simply turning to online lenders based out of state – and getting loans that have even more punishing terms.
A Push to Repeal
Because of consumers’ movement toward high-cost, often unregulated online loans, some legislators in Washington have reportedly advocated to repeal the law that limits payday lending for both borrowers and lenders. The real issues, though, seem to be these:
- Lack of education: Without widespread consumer understanding of how expensive and potentially damaging to finances payday loans can be, unscrupulous lenders will be able to bilk borrowers out of more than they can afford regardless of where or in what medium they’re offering loans.
- Lack of regulation online: Compared to brick-and-mortar lenders, online lenders are still the new kids on the block, and there isn’t yet the kind of regulation of online lenders that provides much useful information for borrowers or lawmakers. While a move toward regulating these less-traditional lenders may not be the immediate solution, a move to promote awareness might be.
- The struggling economy: As long as unemployment remains high, chances are good that Americans in need will continue turning to payday lenders to cover basic costs like rent, utilities and food.
A Rock and a Hard Place
Whether or not states with payday lending restrictions vote to do away with them, this latest payday lending dilemma is akin to another dilemma that colors discussion of the industry. While most consumer advocates agree that payday loans are an exorbitantly expensive source of money, they must admit that low-income consumers and those with shaky credit histories often have few if any alternatives.
So, while payday loan outfits often lead consumers into dangerous and even debilitating cycles of debt, they offer money in a pinch when no other lending outfits will.
Payday Loans and Bankruptcy
The good news (if you’re one of the many Americans currently struggling to repay debt to a payday lender) about payday loans is that they are dischargeable in bankruptcy court. In fact, in Chapter 7 bankruptcy, filers may not have to repay any of the payday lending debt they owe.
If you’re interested in learning more about the connection between payday loans and bankruptcy, or are curious to know whether filing for bankruptcy might help ease your debt load, you can connect with a bankruptcy lawyer today.
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