California is one of the few states that still allows for a regulated form of payday lending. The state has a rate limit that, at first glance, appears to be low. However, the financial charge of 15% of the nominal amount of the payday loan check is much higher than the 15% APR. To address this issue, the Center For Responsible Lending and other organizations have jointly released the Loan Misuse Prevention Act.
This act would limit interest rates on credit cards and other consumer loans, including payday loans, to 15% nationwide. The Center For Responsible Lending is continuing to work with lawmakers to draft bills that limit interest rates and make payday loans more affordable. In addition to limiting interest rates, lenders should also assess a customer's ability to repay the loan. This would help prevent customers from falling into a debt trap.
Payday loans are short-term loans in which the borrower agrees to repay the money with their next paycheck. Speedy Cash clearly outlines its financial expenses on its website and customers sign a contract with this information before taking out a loan. The House Financial Services Committee also introduced a federal bill in May that would limit the APR rate on payday loans nationwide to 36%. This rate is approximately double the current APR for credit cards.
The CFPB (Consumer Financial Protection Bureau) is a federal organization that protects consumers from abusive financial institutions, including payday lenders. The report showed that the use of payday loans has remained stable for the past 10 years, with the exception of last year. Despite the excessive price imposed on payday loans, people continue to use them in every state that allows them. There are clear limitations on allowable principal amounts and financial charges, which determine the cost of your loan.
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