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Federal Regulations that You Must Keep in Mind Before Applying for Payday Loans

It has been debated for over two decades whether the high cost, short term payday loans make consumers better off or worse. Many advocates of these instant loans or one day loans with no credit checks proclaim it to be the consumer’s best option. This can be true in situations where an emergency puts a financial crisis on the family to pay utility bills,  taking such personal loans can be a better option than facing an electricity cut off and an apparent reconnection fee. Credit cards or overdraft facilities at bank may seem to be more expensive to the consumer than such online loans. However, opponents have argued that borrowers of these instruments do not report of their credit status in case of an emergency and repeated borrowings traps them into cycles of debt.

In such a scenario, Federal Regulations have been framed in different states which the borrower must keep in mind while going for these instant loans. In 27 states of the country, Payday is legal while in 9 states it is allowed with some restrictions. It is forbidden in 14 states and in the District of Columbia. The Consumer Financial Protection Bureau (CFPB) is the regulatory authority for regulating the whole Payday Loan industry. This agency prohibits lenders to lend to military personnel and to adopt hostile collection tactics. States like Florida, Indiana, Illinois, Michigan, Oklahoma, New Mexico, South Carolina, North Dakota and Virginia have laws limiting the number of times a borrower can borrow from a lender at a single time. States like Washington and Virginia provides a cap on the number of times a borrower can take such loan in a year. They also advise the lender to lower the interest rate after a period of time so that the borrower can come out of the debt cycle. In the District of Columbia the maximum rate of interest that a lender can charge from a borrower is 24 percent which is the same as that for banks. Moreover, lenders need to have a valid license to operate in the state. In the state of Georgia, such quick cash loans are totally banned. In New Mexico total loans taken by a consumer is capped and immediate rollover of Payday loans is prohibited. If the borrower fails to pay he is offered a 130 day payment period without any interest or fees and once the loan is paid off the borrower must wait for another 10 days before applying for a fresh Payday loan. In Arizona, Operation Sunset was initiated which prevented lenders from charging an interest rate of over 36 percent.

Payday Lending is not a single product but a combination of many. According to the regulatory environment, the size, price and duration of Payday loans varies. Thus, it is very crucial for consumers to get a better understanding of the Federal Regulations before applying for a Payday Loan.