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Sweeping financial regulatory reform legislation has passed Congress and will quickly become law. The legislation calls for a new Consumer Financial Protection Bureau with the authority to regulate non-bank financial products, such as payday loans.
As this new Bureau develops regulations that determine the financial services available to us, it will be important that we speak out about why we deserve access to realistic, reliable and regulated short-term credit. If we all speak up together, they are likely to listen. Click here to get involved.
There are currently five national legislative bills on that will impact short-term loans.
, a 36 percent rate cap bill that applies to all forms of consumer credit and will end up restricting the availability of credit to working, middle class consumers.
, a bill to Amend the Truth in Lending Act to Establish a National Usury Rate for Consumer Credit Transactions. This is a companion House bill to Senator Durbin’s S. 500 which calls for a 36 percent rate cap and would take away access to short-term credit from hardworking Americans.
, The Payday Loan Reform Act of 2009. The legislation goes too far in establishing a national fee cap for one small segment of the short-term credit market – this would limit availability to credit and hurt consumers.
, which would amend the Truth in Lending Act to establish additional payday loan disclosure requirements and preempt certain state laws.
, the Payday Lending Reform Act, which would amend the Truth in Lending Act to establish additional payday lending requirements including an extended payment plan, mandatory disclosures, and fee caps. This legislation would effectively protect consumers while preserving the availability of payday loans.
The 2000 law that allowed payday lending in Arizona expired in July 2010. The annual interest rate for short-term loans is now capped 36 percent. Many payday loan stores have shut down in the state.
California is considering legislation that would raise the maximum amount of a payday loan from $300 to $500. The legislation would also require lenders to offer borrowers an extended payment plan. The bill passed the Assembly and has been referred to the Senate Judiciary Committee. It will most likely be taken up again in 2011.
Some of the fees and loan terms associated with payday loans will change on August 11, 2010. The minimum loan term will be six months and lenders may charge the following: a finance fee of 20% of first $300 loaned, plus 7.5% of any amount loaned over $300; interest of 45% APR; and, a monthly maintenance fee of $7.50 per $100 loaned, up to $30 per month.
In June 2010 Illinois Governor Pat Quinn signed House Bill No. 537 which caps interest rates charged by consumer finance companies at 99 percent on loans under $4,000 and 36 percent on loans above that amount. Additionally, interest rates on payday loans will be limited to $15.50 for every $100 borrowed over a two-week period.
A bill that sought to cap interest, penalties, fees and other charges on payday loans at no more than 36 percent failed to get enough votes in the House Commerce Committee and will not advance further this year.
Rep. Jeff Greer, D-Brandenburg, chairman of the House Banking and Insurance Committee, has decided to wait until next year to have a hearing on a bill that would cap the annual interest rate on payday loans at 36 percent. Greer says he wants to give a new electronic system meant to monitor the payday industry time to work before considering new legislation.
Minnesota state lawmakers considered bills that would have closed so-called “loopholes” allowing short-term loan companies to operate under different statutes and allow certain repeat customers to take advantage of easier terms. The legislation did not advance during the legislative session.
Rep. Mary Still, D-Columbia, and Sen. Joe Keaveny, D-St. Louis, introduced legislation that would increase the amount of time customers have to pay back short-term loans while capping the annual percentage rate for such loans at 36 percent. The legislation did not advance this legislative session.
A November ballot initiative will ask Montana voters to determine whether or not to cap the interest rates on payday loans at 36 percent—a rate that would likely drive payday lenders out of business.
The Ohio house passed legislation that would provide additional payday lending regulations to ensure that the lenders adhere to the 28 percent interest-rate cap which passed last November. The Senate is expected to act on the legislation soon. This additional legislation is unnecessary and further restricts Ohio consumers’ access to credit.
Legislation that raised loan limits to $550, limited consumers to one loan at a time and created a database to track loans passed in the House and Senate, but was vetoed by Governor Sanford. The House and Senate overrode the Governor’s veto, passing the bill into law in June 2010.
The Tennessee state legislature reviewed a bill that would cap monthly interest rates on title and short-term loans at 28 percent. This bill would make it impossible for short-term lenders to operate in the state, thereby eliminating consumers’ freedom of choice and access to credit for millions of Tennesseans. Lawmakers ended their legislative session without passing this bill.
The state legislature in Texas reviewed a bill that would cap interest rates on short-term loan products at 36%. Such a cap would effectively eliminate the payday industry in the state, thus dramatically reducing the available options for Texas consumers who need short-term credit help. Lawmakers finished the session without passing this bill.
In the spring the Washington state legislature passed and the Governor signed a bill that reforms payday lending in the state. It limits payday loans to 30 percent of a customer's monthly income, or $700, whichever is less. Customers who fall behind on their payments can request an installment plan to pay off the loan. And it sets up a database to track the number of loans customers take out and bars them from having multiple loans from different lenders.
Governor Doyle vetoed a bill that would ban auto title loans, limit payday loans to $600 and prevent borrowers from taking out more than one loan at a time because the measure did not include an interest rate cap.
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