For years, anti-poverty activists and politicians have urged legislation to reform or prohibit the payday loan industry. With new regulation being put forward by various jurisdictions in North America, a lot of payday loan stores have decided to go online to circumvent laws.
A large number of states across the United States and provinces across Canada have decided to present new bills that apply restrictions on the industry. Much of the new laws consist of capping interest rates, allowing consumers to have more time to pay back the principal sum and stores conducting more thorough background checks.
Due to these changes, payday loan establishments think heading online will help evade many of the regulations and laws put in place by officials. For a period of time, that was true, and it was difficult for authorities to monitor and regulate fast payday loan businesses that used the Internet for their operations. Now, however, some lawmakers are introducing legislation that would also transfer online payday loan businesses under the purview of government regulation.
Recently, Oregon Democratic Senator Jeff Merkley introduced the Stopping Abuse and Fraud in Electronic Lending (SAFE) Act.
The bill would cover some of the avoidance methods that the payday loan industry implements. According to some of the key points, the SAFE Act would make it a lot easier for officials to maintain caps on interest rates and other state laws. Proponents also argue that the bill would assist the Consumer Financial Protection Bureau (CFPB) in enhancing their efforts to tackle the payday loan industry.
“Payday lenders’ innovation in finding new ways to gouge vulnerable families is deplorable but, sadly, all too predictable,” said Merkley in a statement. “In a rapidly evolving market, it’s critical that our laws and regulations keep up with new and predatory threats to consumers’ pocketbooks. It’s up to us to help keep working families from being caught in a vortex of debt, and I encourage both Congress and the Consumer Financial Protection Bureau to block unscrupulous lenders from preying on hardworking families.”
Although many say it’s a step in the right direction, some are cynical that the SAFE Act can do anything. For instance, a growing number of payday loan stores can hide themselves from view by using anonymous domain registrations and design their websites with zero contact information.
Moreover, there is heightened concern that online payday lenders have essentially metastasized into “lead generators.” These businesses collect personal information and then auction off that data to lenders and digital marketers. Due to this supposed online camouflage, taking legal action is near impossible because they can operate anywhere in the U.S., Canada and Europe.
Nonetheless, advocates of the bill say consumers who borrow money online face even greater danger than they would entering into a physical premise. As previously mentioned, some consumers may be required personal and financial information as part of the loan application process, and this data could then be sold to a variety of parties.
The Oregon Senator thinks the bill can also address online lenders. The legislation, according to Merkley, produces transparency standards for online lenders, aids consumers in having greater control of their bank accounts and clamps down on lead generators.
Despite the good intentions, critics argue that these new rules do nothing to help the underserved. They opine that the impecunious do not have access to credit, and this is why these facilities prosper.
“In short, reining in payday lenders may protect consumers but it will not increase credit availability,” wrote Kevin B. Kimble, the principal of KBK Consulting Group, in an op-ed piece. “If access to better credit products is the goal, lawmakers and regulators at both the state and federal level must adjust their thinking and approach and do more to encourage small-dollar credit providers.”
Polls suggest that most Americans, no matter if they’re Democrats or Republicans, conservatives or liberals, support new legislation that reins in unscrupulous payday loan and car-title loan businesses. Therefore, proponents of the SAFE Act say it may not be a panacea but it’s still a step in the right direction that can garner bipartisan support.