Wednesday, January 2, 2013

Regulated Payday Loan Lenders Work Best Overall

Continued reports against payday loan lenders come out in the news each day. Some lenders are being prosecuted for predatory lending practices while others are fraudulent companies taking advantage of vulnerable people. There are state governments which work towards having tighter control of the payday loan lender practices. There are many states which already have caps on loan amounts and interest rates. This is all done to protect the residents of these states to help prevent further debt problems.
A big problem is that the state regulations do not regulate every lender. There are numerous lenders from other countries or even based out of Native American tribes which do not have to follow these regulations in terms of their lending practices. They have no caps and will loan people much higher amounts. This becomes very tempting for some who do not understand the fast payoff in just a few short weeks, or they overlook it because they are in such an emergency for cash right now. These companies also have higher interest rates so when coupled with a larger loan payoff, the cycling debt trap begins. It is a big mess to dig out from when there is no support from the state government since these lenders do not have to follow state laws. The best bet is to avoid these types of loan lenders at all costs. They understand your vulnerability, but it will only backfire on you in the long run.
Banks and credit unions have also gotten into being a payday loan lender. These financial institutions have caught on to the demand for short-term loans which are not based on credit scores. Most people would not think to even attempt to go to a bank for money when they know their credit is poor. The banks have a reputation for being sticklers about credit history. They also have a trusting reputation for secure money transactions. Someone who is leery about using a direct payday loan lender may chose to go with a bank for a short-term loan thinking that they will be better protected. Because the banks are associated with the federal government, the state regulations do not apply to their payday loans. Many people have fallen into money problems with these payday loan lenders as well. The banks and credit unions are at least legitimate, but their collections practices can be more harmful if the loan goes bad. There is still a payoff expected in a few short weeks, the interest is still high and the banks and credit unions can freeze your bank account until you pay it off. The trouble with debt multiplies when you do not have access to your bank account.

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