Online lending makes the consumer vulnerable to unviable lending practices that charge exorbitant interest rates and leave the borrowers more financially unstable. Consumer advocacy group have been lobbying for appropriate consumer protection to be taken by the federal government including crack down of the so called payday lenders. This seems to be a never ending fight because these lenders will always try to circumvent the law.
It is important that consumers get information on how they can remain protected of online lenders. A review that was conducted by Consumer Action Law Centre found out that some online lenders offering the payday loans are reluctant to hold the spirit of the new regulations which are intended to offer consumers sufficient warnings about the risks of the loans. The regulations are specific about things such as website warnings, specific wording that should be displayed by the lenders on websites, and the size of font and text used in placing the warnings.
Payday loans offered online or in store fronts are often expensive and end up becoming long term loans and not short term credit facilities as intended. Many consumers become reliant on those loans and they find it difficult to get out of the debt. The federal government through the Consumer Financial Protection Bureau-CFPB helps reinforce the law in online lending particularly among the payday lenders.
The online payday sites and store fronts are not like banks or credit unions where borrowing for short term purposes like seven to about fourteen days is not contemplated. In US, the Congress and individual states have the authority to have an outright ban of the payday loans and also control their use including limiting the interest rates and charges.
Federal Deposit Insurance Corporation is mandated to oversee the payday loans. The FDIC mainly deals with banks and other insured depository institutions but because these financial institutes back some third party lending operators like payday lenders, the FDIC get involved in the issues of payday lending. Different institutions and govern agencies take part in the regulation of payday loans.
Within the US structures different regulatory bodies are involved in regulating online loans including the Congress, federal government, the state legislatures, governors of states, the department of defense, and the Attorneys General. Individual states have put in place usury laws that regulate the payday loans including limiting the interest rates and fees charged on the lenders.
Some states have banned these kinds of loans completely and you need to check with your state to establish if the loans are prohibited or not. Learning more about the restrictions on interest rates can help you make decisions when you seek for the payday loans. Traditionally, different states have capped the interest rates to certain levels to protect consumers.
The states have criminal usury laws which protect consumers from these highly risky lending practices. In Georgia, the payday lending practice is explicitly prohibited. In New Jersey and New York, these states prohibit the payday lending through criminal usury statutes by limiting loans to 30% and 25% annual interest rates respectively.