Government creates new guidelines for payday loans

Payday loans have become quite popular the last few years and government officials have stepped in to create new guidelines that will safeguard the consumer while at the same time protecting the lenders.

The Payday Loan

Deposit advance loans or payday loans is a service offered by many national banks.  The banks, using the consumer’s pay check as collateral advances them a loan amount based on the amount, frequency and income source. The banks charge the consumer excessive fees and interest charges in some instances of 120% or more. On the next scheduled pay day, the bank collects what is loaned along with any origination fees directly from the account. Consumer’s face more fees and penalties if they default on the advance loan.  The payday loan starts to become a source of income and a vicious cycle begins.

Government Guidelines

Guidelines established by the government establish protection for the consumer as well as the bank. Guidelines by the government encourage banks to refrain from lending to a consumer with a pattern of delinquency and moderate their fees and decreasing the chance of consumer default on these advance loans.

The lower cost to the consumer while providing the banks protection is a good balance of guidelines and should do what is to be expected.

Source: http://www.out-law.com/en/articles/2013/november/government-to-legislate-to-cap-the-cost-of-payday-loans/

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