Costly Cash: Don't Expect Federal Regulations to Protect You From Payday Loans

DailyFinance
March 11, 2010
Gogoi, Pallavi

Despite almost monthly warnings about the dangers of payday loans from federal financial regulators as well as from consumer advocates, Congress is unlikely to pass legislation to regulate the industry any time soon. The financial crisis prompted lawmakers last year to promise restrictions on risky, high-cost lending and the creation of a Consumer Financial Protection Agency (CFPA), and Sen. Dick Durbin (D-Ill.) and Rep. Luis Gutierrez (D-Ill.) both introduced bills to rein in payday lenders. However, the future of the CFPA remains uncertain, Durbin's current agenda does not put a priority on payday lending caps, and Gutierrez's amendment to the Wall Street Reform and Consumer Protection Act that would have curtailed payday lending was rejected. Observers believe aggressive lobbying by the payday lending industry, coupled with increased donations to lawmakers, are to blame. Although 16 states have 17 percent to 60 percent interest rate caps on payday loans in place, according to the Center for Responsible Lending, observers say payday lenders will continue to exploit loopholes in the laws. In Ohio, for instance, payday lenders skirt the 28 percent cap by relicensing themselves under small-loan and mortgage-loan laws or they simply tack on additional fees.
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