How are Payday Loans Regulated?

Payday loans are pretty common these days, so you would think that the laws on them would be clear. In reality payday loan regulations are very confusing and they vary dramatically depending on where you live. If you are looking for a payday loan you are going to want to make sure that you find out what the rules are in your area. There may be no rules or they may not be allowed at all.

How payday loans are calculated will depend largely on where you live. There are some states in which the rules are so strict that they have effectively put them out of business and payday loans are not available. In other states there are no rules at all on payday loans. The regulations such as they exist are made by the state governments. The reason for the huge differences in rules from one state to the next is that payday loans are a somewhat controversial subject. It also doesn't hurt that the payday loan industry has a very strong lobby.

According to MFStrong, the reason that a lot of states have passed regulation that has effectively brought an end to payday loans is that there are lot of people who view them as predatory. It is easy to see why they would think that, payday loans come with very high interest rates and fees and are overwhelmingly taken out by the poor. There is a strong feeling that these loans are exploiting low wage earners. The belief is that to protect the poor it is a good idea to make strict rules that govern the payday loan industry. Unfortunately things are not that simple.

The problem with making strict rules to govern the payday loan industry is that it normally forces the companies that offer them to close up shop and leave that state. There are a lot of people who think that this is a good thing. However the fact remains that payday loans are widely used and they are widely used for a reason. They are the only loans available to people with low incomes or bad credit. If the payday loan companies leave without some other form of loan being made available to the people who use them they are going to experience a real hardship.

The result is that a number of states are now trying a middle ground approach in which they will leave the laws loose enough to allow the payday loan companies to continue to operate while at the same time curbing the worst of the excesses. Even some states that had previously banned payday loans have started to do this since they have realized there is a demand for them. This approach seems to be working however there are a lot of people who continue to believe that they should be banned. Expect to see more and more states make laws to limit payday loans.