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How the Payday Loan Reform Act Will Help Consumers
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How the Payday Loan Reform Act Will Help Consumers


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By: Mevish Jaffer
It’s no secret that the payday loan industry has its share of supporters and opponents. The practice of loaning quick cash advance or payday loans has been going on for quite some time. Consumers benefit by availing instant cash when they need it most, and lenders turn over a significant profit by charging interest for the amount borrowed. With flexible requirements and quick approval, it’s no wonder why so many people opt for payday loans during financial emergencies. However, critics of the payday loan industry refer to such lenders as “loan sharks” who take advantage of consumers during their lowest financial point. Both the support and opposition of payday loans has resulted in the proposal of a new legislation called the Payday Loan Reform Act. Keep reading to learn how this act can actually help the average consumer.

Consumer Benefits

Those who oppose the legislation argue that payday loans are so troublesome that even a law to regulate them will not be sufficient enough to protect consumer rights. Contrary to popular belief, the payday loan reform act isn't about banning payday loans entirely; it's about helping to protect consumers and keep lenders honest. The truth is many cases of payday loans do end in additional debt for consumers. This often results from payday loan scammers as well the consumer’s inability to repay the loan on time. Fortunately, the major purpose of this loan regulation bill is to prevent such things from happening.

The payday loan reform act calls for some new rules and regulations to govern cash advances in more than 20 states, which include those with weaker or no payday lending rules. This will allow consumers to receive increased protections from predatory lending practices. The payday loan legislation also caps loan fees at $15 per every $100 loaned. Additional benefits allotted to consumers by the new payday loan laws are as follows:

  • Lower annual percentage rate on payday loans
  • Eliminate rollovers
  • Create a mandatory repayment plan
  • Establish a federal platform for additional consumer protections to be added

Importance of Loan Regulation

Although the payday lending industry stands to lose significant profits if the legislation is passed, the average consumer will benefit by receiving added protection against unscrupulous lenders. Responsible for first introducing the payday loan reform act back in March, subcommittee chairman, Rep. Luis V. Gutierrez continues to support the legislation. According to Gutierrez, the payday lending industry has grown substantially in size over the years with poor loan regulations in far too many states. While he doesn’t claim to ensure the bill will end unsavory payday lending practices, he does feel it is a good start to better protecting consumers at a time when they it most.

The fact that some states have adequate protections from payday lenders, while others continue to struggle against scammers in the industry plagues Gutierrez to no end. He strongly believes that working families in particular, can no longer afford the outcome of poorly regulated payday loans. Therefore, that “status quo” is no longer acceptable, which is why the payday loan reform act is so important. As a consumer, the legislation to regulate payday loans can help you to successfully manage the money you borrow and give you additional options when you can’t pay back the loan on time.


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