Say what you like about payday loans, the fact is they are easy to get and fill a real need in the marketplace. Banks generally deny loans to people with bad credit, so many turn to payday loans or bad credit personal loans as a last resort.
For most consumers, all it takes is a valid photo ID, a pay stub and a postdated check, to simply walk into the offices of a payday lender and get an unsecured, short-term loan of around $500 or so.
However, the days of easy payday loans may well become a thing of the past if the proposed changes in lending rules as mandated by a new law in Nebraska come into effect sometime in 2016.
The Consumer Financial Protection Bureau has long advocated the passing of stricter laws to protect consumers applying for payday loans. The CFPB has been particularly concerned about the fact that many lenders offer these loans without carrying out a detailed assessment of the consumer’s ability to repay them in time. As a result, many consumers end up resorting to reborrowing or defaulting on their loans and fall behind on other financial obligations.
The CFPB may yet get its wish in the state of Nebraska, with the proposed new legislation which would essentially require all payday loan operators to have stricter standards when assessing the ability of borrowers to repay loans. The new law also aims to limit the number of payday loans that can be taken back to back by a single consumer.
This has certainly had repercussions on payday loan operators in Nebraska. One national chain has already decided to leave Nebraska in response to the changes, despite the fact that the proposed federal rules are unlikely to take effect for at least a year.
The new law hasn’t won a lot of support among consumers that have been using payday loans to help make ends meet. At the end of the day, payday loans serve those who are in desperate need of quick cash, who are generally shunned by banks and other lenders. Indeed, of the 250,000 complaints made with the CFPB in 2014, only 2 percent had to do with payday loans.
What the Nebraska Payday Loan Says
Payday lenders in Nebraska cannot hold more than two checks from a single borrower and the amount of these checks is not allowed to exceed $500. A fee of $15 is charged for every loan of $100 made to borrowers.
Opponents of payday loans have leveled accusations that the fees charged by lenders are exploitative and predatory. State Sen. Danielle Conrad says, “I believe these products and services are specifically intended to exploit low-income Nebraskans and to trap them in a vicious cycle of debt.”
While there is a limit on the number of checks that can be held by a lender from a single borrower, this may not be a foolproof solution as there is nothing to stop borrowers to take loans from other payday lenders down the street.
To address this, the Nebraska Legislature proposed the setting up of a statewide database among payday lenders. Such a database has been successfully established in many states, but is yet to see the light of the day in Nebraska.
But clearly, payday loan operators are no longer the force that they once were in Nebraska. Several lenders have shut down and the new legislation may force several others to follow as well.
The issue here is the emergence of some online payday lenders who operate in the dark, possibly from foreign countries. Such operators are almost impossible to regulate and have impacted the business of legitimate payday lenders, besides feeding into the negative public perception about the industry.
There were 154 complaints filed with the Consumer Financial Protection Bureau. But only one was about a payday lender. Mortgage banking accounted for the vast majority of the complaints.
Clearly, with the personal saving rate in America being about half of what it was 30 years ago, there is a desperate need for payday loans and bad credit personal loans. Hopefully a balance will be found that protects the interests of borrowers while addressing the massive need for payday loans in the country.