Tuesday, October 20, 2009

SB 834 for Payday Loans

SB 834 is bill passed by national consumer groups that is the Consumer Federation of American and the National Consumer Law Center. Major highlights of this bill are:

1. The bill reduces the allowable fee for payday loans:
Same charges will be allowed for payday loans as the Financial Code presently allows for small loans made by licensed finance lenders. A $5 will be charged as "set-up" fee along with a maximum interest rate of 36% per year (i.e. 3% per month or 1.5% for two weeks). So for every $100, two-week payday loan would cost a maximum charge of $6.50 ($5 set-up fee plus $1.50 interest). The same fee in the current law is a $17.50 charge.

2. Provides greater disclosure and other consumer protections:

(a) Rollovers: Stronger protections against "rollover" are provided by the bill along with the extensions of the original loan. For example, a check casher would not be allowed to enter into a second loan with a borrower until a period of 30 days has elapsed from the date of termination of the first loan. The payday loan lenders will be allowed to extend the time for repayment of the loan, if they wish to do so, but cannot charge a new fee for doing so.

(b) Improved disclosures: As per the bill, the lender is supposed to give a notice to borrowers stating that borrowers cannot be threatened with prosecution for passing a bad check if they are not in position to repay the loan.

(c) Stronger penalties for violations: Consumers will be allowed to recover civil penalties of $2,000 per violation of the law along with the actual damages, and punitive damages for intentional violations.

3. The bill provides for greater regulatory oversight by the Department of Justice, including:

(a) Licensing and bonding: Lenders are required to obtain a license and maintain a bond to pay claims brought by payday loan consumers.

(b) Record-keeping: The records of each loan must be maintained by the lenders to allow examiners to determine if the law was followed.

(c) Reporting: Annual reports must be filed by the payday lenders about loan volume, average annual APR of loans and length of loans, along with other information.

Tuesday, September 8, 2009

Problems caused by Payday Loans

Payday loans are one of the most expensive short term payday cash advance. The money you borrow has to be repaid in full before or on the next payday.

As originally claimed by the industry, the payday loans have now become a trap and are not used on a one-time basis. It becomes difficult to repay the loans due to its high rates that make the borrowers in desperate debt. They keep on extending the loan again and again by paying penalty fee. This kind of loan puts the borrower in worse financial shape.

If considered in California, the payday lenders are virtually unregulated as compared with other states. Even the consumers are easily deceived by payday loans. The consumers are openly harassed by illegal threats or collection practices. So many payday lenders deposit the post dated check of the consumer before the agreed upon date. This causes the check to bounce imposing more fees on the consumers.