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Texas may see new Payday Loan Laws

Legislation was introduced on December 17, 2010 to crack down on storefront payday loan lenders that prey on those vulnerable to payday loans in Texas. Legislation was entered in both the Texas Senate and the House. It is a bipartisan effort, so this has a very good chance of passing and adding additional consumer protection in the state of Texas.

The measures are designed to close a loophole that has enabled 2,800+ payday lending outlets to prey on borrowers without the same oversight as banks and credit unions. These borrowers typically end up refinancing the original loan multiple times, with interest and fees often exceeding 500 percent of the original loan amount.

The bill would limit the interest rate they are charged to 36 percent, the same ceiling in federal legislation signed by former President Bush. Additionally, it would close the loophole in the Credit Service Organization Act that has enabled these lenders to operate with little regulation.

Online Payday lenders targeting borrowers in Montana

As more states are enacting payday loan legislation that limits the interest and fees on payday loans, online payday loan lenders are beginning to target consumers in certain locations. This is the case in states like Montana, who recently passed legislation (I-164) to limit the amount payday loan shops in Montana charge for interest. The new limit is set at 36%. While this limits the profits of brick and mortar payday loan businesses in Montana, some are worried Montana residents will fall victim to higher rates of interest via online payday loan lenders not licensed to do business in Montana. Many of these online lenders are located in different states, and in the past, unlicensed Internet lenders have ignored limitations on fees that may be charged in Montana. It is best to familiarize yourself with the laws in your state and ensure your payday loan lender in acting according to the proper laws and consumer protections in place.

Ways to Reduce your Payday Loan Interest Rate

Being a former employee in the payday loan business, I have found that there are a few little known ways to get better terms on your payday loan. First off, the interest rate most payday lenders charge is astronomical. This can be seen in what is usually a triple-digit APR on your loan paperwork.

Now while it is apparent that many of you need money fast (which is why many payday loan lenders prey upon this, setting unfair loan terms), there are a few things you can do to reduce the high interest rates that payday lenders charge.

1. Extend the due date
Most payday loan lenders will make the loan due on your next payday. Since people tend to have the most trouble with money shortage in between paychecks, this can mean that your payday is coming very soon, perhaps within the week. By simply asking the agent servicing your loan to extend the due date to the next pay period will give you more time to use and pay back the loan. Since many lenders charge a certain fee per $100 borrowed, extending the due date will reduce the APR on the loan.

2. Ask for a Discount
Especially nowadays, lenders are going to extremes to attract new customers. Many payday lenders have unadvertised bonuses and discounts for new customers. If you are applying for a payday loan, and you are a new customer, ask what new customer bonuses or discounts they offer. In many cases, this is usually something like $25 off of your loan, making the loan terms a bit better. When you are a new customer trying to do business with a Payday Loan company, always ask what they have to offer for new customers.

3. Borrow Less
While this won't necessarily lower your interest rate, it does mean you will be paying less interest. Many borrow $100 or $200 more than they actually need so they have an extra cushion before payday. While having a cushion is nice, it's just not worth it when it comes bearing interest. Budget out how much money you will actually need to scrape by until payday. Any excess you have leftover on payday is a waste (because it is money you are paying a high interest on). So basically, don't take out more than you need.

I think we can all agree that payday loans do have unfair loan terms, but they do offer a quick and easy way to get money when it is urgently needed. Follow the tips above to keep your Payday Loan Interest low.

FDIC Program offers Short Term Loans

As of November 2009, 31 financial institutions in 26 states, including Texas, Louisiana and Illinois, have participated in a program aimed at offering short term loans to low-income individuals.

The program offers loans of up to $2500 to those with little or no credit, as an effort to steer them away from the more dangerous lands of payday loans.

So far the program has lent over $28 Million in short term loans. The loans that are offered to individuals carry better loan terms than a payday loan, which often charge fees and have a triple digit interest rate.

Not only does the program provide quick cash when it is needed, it also gives those individuals with lower credit scores to build their credit.

A typical bank will usually offer these FDIC loans at a 14% to 18% interest rate, much better than what payday lenders have to offer.

Surprisingly, the banks participating in the program have seen relatively low default rates.

Arizona Payday Loan Reform Act

Payday loans in Arizona may face further regulation as a reform approaches the ballot in November. Over a quarter of a million signatures of Arizona residents were collected by the Arizonans for Financial Reform in an effort to get the measure on the ballot. To be deemed valid, and qualify for the ballot, a minimum of 153,365 signatures must be collected.

Things are looking positive for those seeking to protect fellow consumers by reducing the expenses of a payday loan. The act also hopes to eliminate the burden of those that get caught in the payday loan trap, which can be a deadly cycle for any consumer.

Those behind the initiative seek to implement a series of consumer friendly restrictions on the payday loan industry. This includes lowering the fees on short term loans, and preventing loan extensions. The initiative also includes a provision to bypass a legislative hearing scheduled in 2010 that could terminate the industry in Arizona.

Those against the Act argue that it will lead to fewer payday loan stores in Arizona, which in turn means fewer jobs. Polls show, however, 80 percent of Arizona voters want reform in the payday loan industry. When it comes to payday lenders, reforming the industry versus eliminating the industry is clearly the better road.


States limit interest on Payday Loans
States strive to limit interest on payday loans

State Governments have been fighting back against outrageous payday loan interest rates by capping interest rates on loans. This has been seen most recently in Ohio, as well as Arkansas, New Hampshire, Oregon and the District of Columbia. All have limits on the interest rate payday lenders can charge on payday loans.

This has been the case after Congress limited interest to 36 percent for payday and car title loans to military families last year.

The Federal Government stated, “payday lending threatens the quality of life of military families and combat readiness of servicemen and women”. This is why payday loan and car title companies are outlawed near military bases.

The interest cap rate of 28% is a big change from the original limit of 391%. The change will limit profits for lending companies and some may even stop lending all together.

Another interesting fact is that the law extends loan terms from 14 days to 31 days, mainly to help those who only receive income once a month (social security). This way the borrower who lives off a monthly income does not have to pay two or more loan extension fees.

Payday loan borrowers need to make sure that they do not borrow more than they can handle. If the loan amount taken out is too large, it won’t be able to be paid off come payday, therefore getting the borrower caught in the typical payday loan trap. The fact that the government is stepping in and limiting interest rates and protecting borrowers is a step in the right direction.


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