Few federal regulations affecting payday loans exist today. Proponents of payday loans claim this is so because regulations over and above what individual states have already passed are not necessary. They believe payday loans are viable alternates when individuals find themselves temporarily short on cash. Opponents argue that payday loans are predatory and federal regulations affecting payday loans are needed immediately to curb the growth of this rapidly escalating industry.

The status of federal regulations affecting payday loans

In the year 2000, the wording of Regulation Z of the Federal Truth in Lending Act was modified to include originators of payday loans. Although the Act itself was not new, the wording resulted in the first federal regulations affecting payday loans. Originally designed to force lenders to fairly and accurately disclose to borrowers certain loan terms, the wording forced payday loans originators to also comply. Specifically, payday lenders are now required to disclose the annual percentage rate, all finance charges, the payment schedule and the policy on late payments before an applicant agrees to the loan.

The law also requires that lenders clearly explain these parts of the loan in an easy-to-understand format. In addition to needing to be simplistically explained, the Act states that the terminology must also be readily apparent and not buried in the fine print. Other sections of the Federal Truth in Lending Act that now apply to payday loans include the sections on filing civil complaints against lenders and the ability to recover actual and statutory damages.

Other Federal regulations affecting payday loans have been introduced to Congress as recently as the 2005 session. However, none of these has yet to become law.

States legislation

Although federal regulations affecting payday loans are nearly non-existent, many states have enacted legislation governing payday loans. While crafted with the interests of consumers at heart, state legislation is not consistent among the different states. Instead of protecting consumers, most legislation seems only to confuse consumers further. Some states have even taken the drastic step of outright prohibiting companies from engaging in the business of payday loans.

Given the fact that Federal regulations affecting payday loans are few and State laws governing the process are jumbled, one has to wonder whether or not such legislation is necessary and whether it really can benefit the consumers, the people that many feel are at such risk. In other words, are payday loans really the monster that many claim them to be?

As with anything in life, there’s a right way and a wrong way to use a payday loan. Those who see such cash advances as a short-term solution do benefit from their availability. They get the money they need, the fees are reasonable, and they repay the advance when due. On the other hand, those who repeatedly rely on this type of funding can and sometimes do end up with a bigger financial problem on their hands. Shouldn’t then the responsibility lie with the applicant and not in the need to create federal regulations affecting payday loans?