No one can argue the fact that payday lending is an important player in the consumer credit market. But, there are many people who think this form of lending should be banned for keeps. They think these loans are anything but useful. The usually base their arguments on the fact that these loans charge triple digit annual interest rate. It is due to these opponents and their arguments that several types of regulations have been introduced by the authorities. But, like it or not, this industry has always been able to make changes to its business model after the introduction of new wave of regulations.
Actually, the regulations have helped this industry to evolve in a great way. This industry has always been responding to the regulations in the most amazing way. One great example of evolution of this industry is from the late 1990s, when regulations were introduced to put a barrier on high loan fees. These regulations were to keep lender away from earning outrageous profit. But, these regulations made this industry to do some adjustments in the business model. What they did was quite amazing! They started partnering with national banks.
This was a step to avoid State fee caps. Actually, the out-of-state national banks were allowed to take the interest rate of their home state into a different state. Call it a loophole or whatever you want, that started to help payday lenders to charge higher fees and interests than they were allowed to charge.
According to the National Bank Act, national banks are allowed to charge higher interest rate in different states, which is the reason why they are not liable to follow the state usury laws and interest rate caps.
This is to imply the fact that payday industry is capable of making changes. They usually take swift steps when government makes an effort to stop them from charging high fee. It is actually due to this particular fact that many opponents of this form of lending argue that there is nothing to contain these lenders. But, the good thing is that certain steps are taken by the federal government to stop state-chartered banks working with payday lenders. In March 2005, the rules were tightened a bit more by the FDIC to prohibit regulated banks from working with different cash advance lenders. This guidance has helped in making things better for people who are not in a position to secure this type of loans without paying a really high interest or fees.
The bottom line is that though payday lenders always try to circumvent fee caps, but the government is also well aware of their activities and always takes steps to deal with the tactics adopted by lenders. So, it can easily be deduced that this form of lending is perfectly safe for all, but it is advisable to do your research before using it.
