States Differ on Payday Loan LawsRecently the states of Kentucky, Iowa and
Virginia have been in the news for their positions on
payday loan legislation. While Kentucky and Iowa aim to corral interest rates, Virginia’s Senate is voting to extend the powers of payday lenders.
The Kentucky State House Banking and Insurance Committee is set to vote on legislation that will place a 36% annual interest rate cap on payday loans. Representative Darryl Owens has tried the past two years to present payday loan legislation but was denied a hearing by the Committee. This time he is backed by various consumer groups who hope to succeed in capping rates on short-term loans.
The state is divided on the issue. Many critics, like the head of the Kentucky Council of Churches, Marian McClure Taylor, are passionately against payday lending. Others argue that the 36% rate might put loan lenders out of business, thus forcing the 180,000 payday advance customers in the state to find other means for solving unexpected financial problems.
At the moment Iowa State laws don’t regulate loans of less than $500. Payday loans are typically between $200 and $500 but rarely more than that.
A coalition of consumer groups in Iowa are pushing to implement the same 36% cap on payday loans in their state. The Iowa Catholic Conference, Iowa Citizens for Community Improvement, and the
National Association of Social Workers have vowed to push the Iowa State Legislature to join the 15 current states that have adopted the 36% annual interest rate cap.
Virginia, on the other hand, is taking steps towards expanding the freedoms of payday lenders in their state. The Virginia State Senate, influenced by majority leader Richard Saslaw, has been very favorable towards payday lenders. Saslaw is currently promoting legislation that will allow citizens from neighboring states to have access to Virginia’s payday lenders.
Saslaw believes that people should have access to financial services that they want, and that it is their responsibility to use them properly.
The Virginia State Senate has denied two bills recently that were designed to adopt the 36% interest rate cap and close loopholes in payday loan laws.
It is important to understand, from either perspective, that payday loans (like all financial products) are an option, not a necessity. For thousands of people who have poor credit and find themselves in a tough spot financially, a payday loan is a great way to get over the hump of an unexpected expense.
For the small percentage of people who find themselves in a cycle of loans the majority, on the other hand, benefit from the service and would be struggling otherwise. The key is to be responsible and understand the terms of your loan. Only sign a loan if you are confident that you will be able to pay it off within the loan term.